Korean Tech Firms Might Be Affected by Negative Business Sentiments on the Third Quarter of 2015

by Czarelli Tuason / Sep 06, 2015 11:09 PM EDT

Samsung Electronics HQ raided over Choi Soon-sil scandal on Tuesday, November 7.

Manufacturing sentiments for the month of September mirrors the negative sentiments of August, as shown by the Federation of Korean Industries (FKI) surveys and the country's central bank. This implies danger for the country's tech firms.

ZD Net noted on Tuesday Seoul analysts have predicted the dark clouds from the previous months will carry on to hurt South Korea's tech firms by the third quarter.

Among the companies that have been greatly affected are Samsung Electronics and LG Electronics. The former has a 12.2-percent decline in overseas exports in the second quarter, while the latter is down 2.7 percent in their overseas sales.

According to an article by Business Korea published on Tuesday, Samsung Electronics' stocks have lost approximately $44 billion in the stock market as demands for their Galaxy smartphones drop rapidly.

"Everybody knows that Samsung smartphone business is going through a slump," observes a stock market analyst. "We cannot predict when the drop will end."

In a business survey conducted by FKI with 600 local companies participating, September sentiments show 95.1 percent, an increase of 5.5 points as compared to the previous month's 89.6 result. The poll reflects a negative standpoint for six straight months. The result of the survey is deemed disadvantageous for tech firms Samsung Electronics and LG Electronics.

"The general consensus right now is that the third quarter earnings will be lower than the second quarter," says IT analyst at KDB Daewoo Research Jonathan Hwang, "The impact that Samsung's Galaxy S6 had on the second quarter is already fading. In the third quarter, we will see much less of an effect from that phone. Plus, they lowered prices which will eat into their profit margin."

A business survey index (BSI) conducted by the Bank of Korea shows a rating of 73, wherein ratings below 100 means that more companies expected to decline exceed those who are expected to advance.

"Obviously this is a very challenging market especially for Korean exporters," states Hwang. "Samsung's earnings are better distributed among business divisions, such as semiconductors and components. LG is more dependent on their smartphone and TV businesses. They do not have components businesses like Samsung."