Will Samsung's stock buyback drive long-term rebound?

A monitor displays Samsung Electronics' stock price at Korea Exchange in Yeouido, Friday. Newsis Improvements in memory chip competitiveness required for uptrend By Nam Hyun-woo Samsung Electronics' announcement on Friday that it will buy back 10 trillion won ($7.17 billion) worth of its shares over the next year to prevent further declines in its falling stock price is expected to lead to a short-term increase in share value.

However, it remains uncertain whether this will result in a signal for the company's long-term rebound or end up being a stopgap measure. According to the plan, which was announced after Friday's trading session was closed, Samsung Electronics will repurchase and cancel 3 trillion won of shares — 50.14 million common shares and 6.



91 million preferred shares — from Monday to Feb. 17. The company's board will then decide when and how to buy back shares worth 7 trillion won after reviewing the best timing for "improving shareholder values.

" The 10 trillion won program accounts for approximately 10 percent of the company's cash and cash equivalents worth 103.78 trillion won. The decision to allocate such a substantial portion of assets to share buybacks — rather than R&D investments or acquisitions — appears to stem from the need to address its sharply declining stock price.

Samsung Electronics' flag waves at the company's office in Seocho District, Seoul, Sunday. Newsis Samsung Electronics ended at 49,900 won on Thursday, falling below the 50,000 won mark for the first time in over four years. Considering that Samsung's stock was trading at around 88,000 won in August this year, its value has nearly halved over the past four months.

It bounced back to 53,500 won on Friday, up 7.31 percent from a day earlier, but this was largely viewed as a "dead cat bounce," a short-lived recovery following a prolonged decline, driven largely by foreign investors buying. Industry officials anticipate that the buyback program will likely be helpful in bringing a short-term recovery given the past precedents.

Samsung Electronics announced share buyback and cancellation plans worth 11.4 trillion won in 2015 and 9.3 trillion won in 2017.

Between the initial announcement in late October 2015 and the completion of the program in late November 2018, the company's stock price surged by 52.5 percent. "The announcement reflects an intent to provide short-term support for the stock amid a sense of crisis," IBK Securities analyst Jeong Yong-taek told The Korea Economic Daily.

"While it may not lead to immediate changes in fundamentals, it could help improve investor sentiment." Read More Trump risk weighs on struggling Samsung Electronics Politicians, lobby groups challenge 52-hour workweek as Samsung struggles Samsung looks for breakthrough with revamped memory strategy As Jeong said, the buyback program may be a short-term boost but does not necessarily imply that Samsung stock will show a stable uptrend in a long-term, because the company is yet to reveal its action plans or clear messages to address market doubts surrounding its fundamental competitiveness. Samsung Electronics' stock price began to show a sharper decline as the company announced its third-quarter earnings last month.

Despite posting an operating profit, the earnings showed that the company is falling behind its rival SK hynix in high-bandwidth memory (HBM), an advanced DRAM chip that powers AI processors, while its foundry business is posting losses. "The most urgent priority for Samsung's recovery appears to be restoring the core competitiveness of its DRAM business," Kiwoom Securities analyst Park Yu-ak said. "Samsung allowed its rivals to first develop advanced DRAM process nodes, which has significantly delayed the mass production of applied products like HBM3e.

Therefore, Samsung has to concentrate its efforts in developing the next-generation HBM4 to regain both its technological competitiveness and the trust of market participants." Conglomerate officials also note what could be important for Samsung's rebound is soothing market's worrisome sentiment through strong messages. "Despite the recent price fall, Samsung's third-quarter operating profit is not as bad as its stock price — it actually achieved a quarterly high in sales," an official said.

"This means that the company is unsuccessful in suggesting strong future visions to the market as it used to do and failing to convince investors. I believe that is the role of the company's leadership.".