South Korea's Samsung Electronics pulled out of an extended earnings dive Thursday, reporting a nearly 30 percent surge in third-quarter net profit and announcing a $10 billion share buyback.
Favourable exchange rates and a renewed focus on components were behind the profit jump, as Samsung sought to shake off the loss of smartphone market share to Apple Inc in the premium segment, and to Chinese rivals at the lower end.
Net profit in the July-September period stood at 5.46 trillion won ($4.8 billion) -- an increase of 29.3 percent on the previous year and snapping a streak of seven consecutive quarterly declines.
The company estimated overall gains from a weakening won against the dollar at 800 billion won for the quarter -- generated mostly from the components business which takes in chips, displays and screens.
However, it warned that earnings might shift downwards in the fourth quarter when the exchange rate benefits would be less pronounced.
The cash-rich electronics giant also announced it would buy back and cancel 11.3 trillion won in shares, while also ramping up capital spending.
"Samsung believes that the current share price and the market value of Samsung Electronics are severely undervalued both in terms of the ability to generate earnings and also in terms of the underlying asset or equity value of the company," it said.
- Share price jump -
The announcement saw Samsung Electronics shares jump as high as 4.9 percent in early morning trading.
The buyback will be carried out in up to four stages -- the first starting on October 30 and lasting for approximately three months.
The world's top maker of mobile phones has a market capitalisation of almost 200 trillion.
Its cash reserves of 70 trillion won have been the focus of growing calls by investors to offer more dividends and boost its share price.
"Investors have long been unsatisfied with Samsung's shareholders return policy and the time has ripened to soothe angry investors," Lee Seung-Woo, an analyst at IBK Securities Co. in Seoul told Bloomberg News.
"If Samsung had chosen to remain silent again this time, investors would turn even more sour," Lee said.
Samsung said capital expenditure would rise to 27 trillion won this year as the company invests in chips and display plants.
Though the size of the third-quarter turnaround was partly due to the company's poor performance last year and a weakening Korean currency, it also showed the payback from the renewed focus on its semiconductor division.
"The memory market saw an increase in demand... driven by an overall increase in capacity in chips and the launch of flagship smartphones and increased demand by data centres," the company said in an earnings statement.
- Surging chip profits -
Operating profit in the semiconductor business surged to a quarterly record of 3.6 trillion won, up 60 percent from a year ago.
Samsung sets prices for most components in US dollars and benefits when those sales are translated back into won if the Korean currency is weak.
The US dollar was about 11 percent higher against the won at the end of the quarter, compared with a year earlier.
"In the fourth quarter, the company expects earnings to decline from the earlier quarter, as it does not expect the foreign exchange rate to have such a positive effect," the company said.
Samsung's mobile unit also saw a 40 percent on-year increase in third-quarter operating profit, with a "significant increase" in sales of smartphones over the period.
However, price cuts to the top-end Galaxy S6 and Galaxy S6 Edge smartphones and increased shipments of mid-to-low end smartphones, meant the unit's net profit actually declined compared to the second quarter.
Park Jin-Young, Samsung's vice president for the mobile business, told a conference call that efforts to revamp production -- increased component sharing, higher output, lower costs -- were having an impact.
"We think it's an impact that will last for a while," Park said.