Samsung Electronics drops 5 percent on weak earnings outlook, soaring won

Samsung Electronics Co Ltd fell more than 5 percent on Thursday to its lowest in over four months, weighed down by analysts' forecasts of lower quarterly earnings due to the strong won currency and weaker margins at its display business.

Shares fell as much as 5.1 percent on Thursday to 1.302 million won, the lowest since late August. The stock closed down 4.6 percent, its fifth consecutive session of decline, a downtrend that has wiped nearly $18 billion off the market value of Asia's most valuable company.

Samsung, the world's largest maker of smartphones, memory chips and televisions, is scheduled to report its October-December quarter earnings estimate next Tuesday.

The company is forecast to report a record 10.3 trillion won of operating profit in the October-December quarter, a one percent increase from the previous quarter, according to an average estimate of 40 analysts by the Thomson Reuters I/B/E/S.

But Starmine SmartEstimate, the average of the most accurate analysts' estimates, forecasts a 3.6 percent quarter-on-quarter drop in Samsung's operating profit to 9.9 trillion won.

"We expect Samsung's performance to be about 9.5 trillion won, lower than the market consensus of around 10.2 trillion won. The biggest reason would be the won-dollar exchange rate, followed by shrinking margins in organic light-emitting diode (OLED) sales," said Lee Seung-woo, tech analyst at IBK Investment & Securities.

A stronger won is particularly bad for the profitability of Samsung's component business as the unit mainly uses the U.S. dollar for settlement, analysts said.

The won jumped to its highest since mid-2008 on Thursday and market participants expect further gains as recent data pointed towards a firm economic recovery.

BNP Paribas analyst Peter Yu, one of the more bearish analysts about Samsung's earnings, estimates the operating profit of the component business to change 4 percent for every 1 percent change in the won/dollar rate.

He also estimates Samsung's fourth-quarter profit to fall by 14 percent from the previous quarter to 8.8 trillion won due to a stronger won, a one-off special bonus payment and weaker sales of smartphone components.

The won's rally has also dealt a blow to other major exporters, with shares of Hyundai Motor Co tumbling 5.1 percent and Kia Motors Co losing 6.1 percent.

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