Financial turmoil takes toll on Korea Inc. in Q3

The third quarter report card for Korea Inc. is coming out and it’s clear the past three months have been anything but a walk in the park.

With the exception of Samsung Electronics, Korea’s top technology company, and Hyundai Motor, the country’s largest automaker, performances were poor across the board, even extending to key world players Hynix, LG Display and LG Electronics.

Beset on all sides by a gnawing debt crisis in the U.S. and Europe, a depreciating won against the dollar, China’s subtle economic slowdown and persistently bad market conditions for chip and panel makers, companies did what they could to weather the storm.

But according to data by financial information provider FnGuide, 47 out of 79 firms that have announced that their third-quarter business results saw profits decline, or swung to losses.

Chain reaction

Hynix Semiconductor, the world’s second-largest maker of computer memory chips, said yesterday it swung to a net loss of 562.6 billion won ($496.8 million) from July to September, compared to a net profit of 1.04 trillion won one year earlier.

Even though the third quarter is traditionally a good season for the PC business, consumers and corporations cut back on spending amid concern about Europe’s financial woes and global economic uncertainties, according to Hynix officials.

Prices of dynamic random access memory (DRAM) chips for PCs also nosedived.

“A gradual decline in chipmakers’ profits is expected in the second half of the year,” James Song, an analyst at Daewoo Securities, said in a report.

Hynix follows in the footsteps of other losers in the technology industry.

LG Display, the world’s No. 2 manufacturer of liquid crystal display (LCD) panels, also posted a net loss of 524 billion won as consumers delayed TV purchases because of the uncertain economic outlook and panel prices remained low.

LG Electronics, the world’s third-largest maker of mobile phones, sank into the red on a net loss of 413.9 billion won as its smartphone business stayed sluggish and due to equity losses from LG Display.

Market bellwethers in other industries also took a beating.

Korean Air, the nation’s No. 1 airline, also posted losses due to increased fuel costs and a weakening local currency.

Posco, Korea’s leading steelmaker, reported a 78.4 percent on-year drop to its third quarter earnings due to the currency exchange rate and weak demand amid the global economic slump.

Exporters have been hit especially hard, as is usually the case when conditions deteriorate in the U.S. and Europe due to Korea’s strongly export-driven economy.

Rough road ahead

Hyundai Motor, Korea’s largest automaker, announced yesterday that its third-quarter earnings jumped 20.7 percent from a year earlier to reach 1.91 trillion won. This was based on robust exports as the company benefited from the release of new models and saw solid improvements in its competitiveness.

“The overall global market conditions are not favorable due to the ongoing euro zone crisis and fierce competition from both Japanese and U.S. carmakers,” Hyundai said. “But we believe we can maintain growth momentum in the coming months.”

Samsung Electronics, which is slated to report its earnings today, also estimated that it had posted operating income of 4.2 trillion won, which is a 13.6 percent decline from a year ago, but above the median market forecast.

Market watchers say Samsung’s smartphone sales likely made up for its weak chip and display panel businesses. Song estimates the company’s mobile communications division posted record-high operating profitS of at least 2 trillion won.

“Because of Samsung Electronics’ ‘earnings surprise,’ its total profits won’t be too low, but when you look at each industry segment, there is cause for concern,” said Kim Hak-kyun from Daewoo Securities.

The financial industry estimates that of the 154 companies that had not announced their Q3 earnings as of yesterday morning, 71 will report a decline in operating profit on-quarter.

By Kim Hyung-eun, Yonhap [hkim@joongang.co.kr]