The electronics industry is the most dynamic sector in the world. This sector encompasses various types of electronics, including mobile phones, Internet, telecommunications, televisions -- the list is endless. The key innovation point has been to create more power and applications in a smaller electronic device. The urge to maximize market share has lead to cutthroat competition in this industry. This fact has unleashed some great investment opportunities in this sector.
Competition has therefore been stiff, with various companies competing in terms of efficiency, sleek models, and more user-friendly devices. Power saving and safety have been used as competitive edges, and this has not been in the absence of minimized cost of production. There have been moves by companies to set up manufacturing factories in areas that favor production in terms of cost reduction and availability of resources needed in that production. Japan, North Korea, and China have been the countries in focus for electronic companies looking to set up their production factories.
The growth in sales in the electronic industry has been rising due to increased demand for new products. World Semiconductor Trade Statistics forecasts a consistent rise in sales in the industry over the next three years. Sales are expected to reach $314.4 billion in 2013, which would be 5.4% growth from FY 2011 and a 1% increase from FY 2012. This has resulted from a consistent rise in the global demand for the latest innovations in this industry, which has in turn been boosted by the rising demand from emerging economies.
Samsung Electronics (OTC:SSNLF) is the world's largest information technology company as recorded in 2012 reports. The company, based in South Korea, has a powerful influence on the country's economic developments and, together with affiliate companies, has been known to contribute one-fifth of South Korea's total exports. In 2010, Samsung's total revenue contributed to 17% of South Korea's $1082 billion GDP. In FY 2009, Samsung recorded consolidated revenue of $172.5 billion, and $258 billion and profits to the tune of $27.6 billion in FY 2010. The trend is expected to rise in consecutive years as a result of the recent smart moves by the company to enhance productivity and innovations to introduce cutting-edge products demanded in the market.
Samsung began construction of the world's largest mobile phone factory in Thai as part of its expansion strategies for FY 2013. This is bound to introduce mass production and reduce production costs. The move is also likely to place Samsung abreast of its competitors in the industry. The company has recently focused on specific areas like mobile phones manufactured to suit the trends in demand, and has also gotten rid of some product lines such as the sale of its hard-disk drive business to Seagate (STX). This has been one of the causes of rising trends in profitability as a result of concentrating on the more profitable product lines. In FY 2012, Samsung became the world's largest mobile phone manufacturer ahead of Nokia, which had been the market leader for over a decade.
However, the positive performance of Samsung has not been devoid of challenges; competition and the safety of patent rights for some of its innovations have been at the top of the list. In FY 2012, Samsung was given a court order to pay Apple (AAPL) $1.05 billion in damages for violating six of the company's patents on smartphone technology. This had a negative impact on the company's image, and the effect was reflected in a share price fall on the Kospi by 7.7%.
The chart below represents a summary of Samsung's financials from FY 2008 to FY 2012. The figures indicate a commendable performance by the company, especially from the consistent rise in revenue from sales through the period. This has resulted from the specialization move recently adopted by the firm to invest resources in high-end products that are in high demand. This has been a rewarding move as it has raised the net income consistently from KRW 5.5 trillion in FY 2008 to KRW 13.7 trillion in FY 2012.
The EPS number, which represents the net income on the existing shares, has also been on a rising trend, which has in turn rewarded the shareholders handsomely. The dividend payout has been impressive for shareholders, especially with a payout ratio of 6.2%. The per share book value has been on a consistent rise, making Samsung one of the most highly valuable companies in the Kospi.
Revenue KRW Mil
Gross Margin %
Operating Income KRW Mil
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Net Income KRW Mil
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Book Value Per Share USD
Operating Cash Flow KRW Mil
Cap Spending KRW Mil
Free Cash Flow KRW Mil
Free Cash Flow Per Share USD
Working Capital KRW Mil
Tax Rate %
Net Margin %
Asset Turnover (Average)
Return on Assets %
Financial Leverage (Average)
Return on Equity %
Return on Invested Capital %
The court case between Samsung and Apple had a negative impact on the stock's financial performance. Samsung's tarnished reputation in FY 2012 caused a slight fall in both the share price and ROE. However, with the case now decided, Samsung is expected to fix its image and regain its position in the financial market.
Consistent innovation and specialization has placed Samsung ahead of its competitors in the electronic industry. Amid the various challenges, the company has maintained a competitive edge and a customer focus on production, backed by cost-reduction techniques. The ability to regain ground after a case that challenged its reputation is a sure measure of the company's ability to outperform its rivals in the industry. Samsung has built an attractive reputation that investors will consider in their investment decisions. The consistency in share value increases and the rising dividend payout ratio create a promising scenario for an investor.