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Samsung SDS likely to see drop in Q1 earnings

Information technology solutions developer Samsung SDS, once considered as a key Samsung Group affiliate in the inheritance process of the conglomerate’s owner family, is struggling as it is expected to see a significant drop in earnings in the first quarter of this year.

Some analysts speculated the recent struggles are largely because the hype over its role in the family inheritance has fizzled.

Chung Yoo-sung, chief executive of Samsung SDS. (Samsung SDS)
Chung Yoo-sung, chief executive of Samsung SDS. (Samsung SDS)

Its share price dropped to a record low of 154,000 won ($133) on Thursday -- 64 percent drop from the high of 429,500 won posted on Nov. 28, 2014.

The figure is even below the company’s offering price of 190,000 won per share. The stock price bounced slight back to close 162,000 won on Friday.

“The first quarter earnings will likely be more disappointing than expected and things would not improve much in the second and third quarters,” Kim Dong-yang, an analyst from NH Investment and Securiteis told The Korea Herald, citing seasonal factors in the first quarter and global economic downturns.

Chung Yoo-sung, chief executive of Samsung SDS. (Yonhap)
Chung Yoo-sung, chief executive of Samsung SDS. (Yonhap)

He anticipated that the IT solutions developer would post 1.8 trillion won in revenue and 124 billion won in operating profit in the first quarter, down by 7 percent and 4 percent on-year, respectively.

“The company needs to revamp its businesses and management structure through an M&A deal or a spin-off, utilizing its hefty cash pile of 1.9 trillion won,” he said.

Other market analysts claimed the primary cause of the dropping stock price is that Samsung Group vice chairman Lee Jae-young’s succession plan revolving around Samsung SDS has faced an impasse.

It had long been speculated that Samsung SDS would be merged with Samsung Group’s de factor holding firm Samsung C&T, or its crown jewel Samsung Electronics.

The merger with Samsung C&T, sitting atop Samsung Group’s intricate ownership structure, was seen as a more likely option as Samsung Electronics officially denied the rumored merger plan with Samsung SDS.

Samsung Group heir apparent Lee, however, sold around 1.6 million shares, or 2 percent, of Samsung SDS on Jan. 29, fueling the speculation that the company was left out of his succession plan. The share price of the company dropped more than 15 percent the next day.

Vice chairman Lee is still the largest individual shareholder of Samsung SDS with a 9-percent stake while his sisters -- Boo-jin and Seo-hyun -- hold 3.9 percent of Samsung SDS each.

The vice chairman is also the largest shareholder of Samsung C&T with a 17.2-percent stake.

Samsung SDS is slated to announce the earnings report later this month.

The company refused to comment on the inheritance issue, saying “the recent drop in stock price was due to seasonal factors.”

By Kim Young-won (