Bonus payments drag Samsung Electronics' fourth quarter profit down

Tuesday 07 January 2014 12.05
Samsung handed out an estimated $1 billion in bonuses to mark 20 years since its chairman set it on the road to becoming a global giant
Samsung handed out an estimated $1 billion in bonuses to mark 20 years since its chairman set it on the road to becoming a global giant

Samsung Electronics earned less than even the most conservative analyst forecast in the three months from October to December.

The decrease comes after the firm handed out an estimated $1 billion in bonuses to mark 20 years since its chairman set it on the road to becoming a global giant.

The world's largest smartphone maker has splashed out on its employees from a cash pile of around $50 billion just two months after increasing its dividend yield far less than many investors had expected. 

Fourth-quarter operating profit was likely 8.3 trillion won ($7.79 billion), down 6% on year and 18% from a record third quarter, Samsung Electronics said today before a final figure on January 24. 

The figure was pulled down by bonuses given to employees commemorating Chairman Lee Kun-hee's "New Management" strategy which analysts put at 300 billion to 700 billion won.

Lee, who took over Samsung Group in 1987 from his founder-father, in 1993 ordered managers to "change everything except your wife and children" to transform Samsung Electronics from a mid-tier television set manufacturer into a global technology leader.

It has since overtaken Sony in TVs, Nokia in mobile phones and Apple in smartphones.

Lee, who turns 72 this week, set the agenda for the future in his New Year speech by stressing the need to drop a hardware-centric culture and adopt new ways of thinking to drive innovation.

The company usually pays bonuses up to 100% of basic monthly salary to employees in units which achieve targets, and up to 50% of annual salary by returning 20% of profits that exceed targets. Korean companies often pay low salaries and top up with various bonuses.

Fourth-quarter earnings were also likely affected by Samsung's flagship Galaxy S and Note smartphones losing out somewhat to Apple in the US and Japan during the Christmas season.

It estimated fourth-quarter sales of 59 trillion won, versus the 61 trillion won from analysts.

Samsung is bracing itself for its toughest year at its mobile devices division since it started making smartphones in 2007, with analyst estimates ranging from low single digit profit growth to mild contraction after growing eight times over in past five years.

The division, which earns two thirds of overall operating profit, will come under pressure when Apple makes its phones available from January 17 via China Mobile, through which Samsung has been selling smartphones for around seven years. 

Apple is also widely expected to sell smartphones with larger screens come autumn when it traditionally announces products, neutralising a selling point that Samsung has enjoyed since introducing its Galaxy Note in late 2011.