Negative business sentiment to hurt Korean tech firms in 3Q

Two women walking through a comercial district in Seoul during the MERS panic a couple of months ago. It was one of the factors compounding an overal down business sentiment in South Korea.
Two women walking through a comercial district in Seoul during the MERS panic a couple of months ago. It was one of the factors compounding an overal down business sentiment in South Korea.

This story was originally written for ZDNet on Sep. 1

Business sentiment for September in South Korea is as low as it was in August, and according to analysts, that gloom will carry into third quarter revenue figures for South Korean tech firms.

Stacked on top of faltering second quarter revenue by South Korean tech firms, manufacturing sentiment for September is as negative as it was in August, according to surveys released on Monday by the Federation of Korean Industries (FKI), and on Sunday by the country’s central bank.

According to analysts in Seoul, that gloom will carry into third quarter revenue figures for South Korean tech firms.

Samsung Electronics reported a 12.2 percent decrease in overseas exports in the second quarter and LG Electronics’ overseas sales were down 2.7 percent, according to the figures released on Monday by the FKI — an alliance of local conglomerates.

According to FKI’s business survey index, from a poll of 600 local companies, sentiment is 95.1 for September, 5.5 points higher than August’s 89.6 figure. It showed an overall negative outlook for six consecutive months. Analysts in Seoul estimated that means trouble for Samsung and LG’s third quarter numbers.

“The general consensus right now is that the third quarter earnings will be lower than the second quarter,” said Jonathan Hwang, IT analyst at KDB Daewoo Research. “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.

This graph illustration Business Survey Index results month-by-month throughout the 2015. Score below 100 indicate a "negative" perception for business in the coming and the current month.
This graph illustrates  theBusiness Survey Index results month-by-month throughout 2015 and the end of 2014. A score below 100 indicates a “negative” perception for business in the coming (the Black Line on top) and the current month (the Red Line underneath).

Results from the Bank of Korea’s business survey index (BSI) released on Sunday were just as dour, with September at a seasonally adjusted 73, the same number it was for August. An index reading below 100 indicates that companies who expect business conditions to deteriorate in the following month outnumber those seeing improvement.

“Obviously this is a very challenging market especially for Korean exporters,” Hwang said, adding that the challenges facing LG Electronics are greater. “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.”

Both the Bank of Korea and FKI said the gloom from South Korean manufacturers was due to sluggish exports holding back factory activity. Demand for handsets is soft and currency devaluations across emerging markets hurt, too.

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