South Korean chip giants face shareholder ire over meager returns amid record profits

Shareholders of major South Korean semiconductor companies, including Samsung Electronics and SK Hynix, are voicing growing discontent. Despite the firms achieving astronomical profits and awarding substantial bonuses to employees, fueled by a semiconductor super-cycle, concrete plans for increased shareholder returns remain elusive.

Both Samsung Electronics and SK Hynix have indicated they are internally reviewing additional shareholder return measures. SK Hynix is anticipated to finalize and announce its plans within this month, while Samsung Electronics is expected to follow suit shortly. These companies are currently operating under existing three-year shareholder return frameworks. Samsung Electronics allocates about 9.8 trillion won annually for regular dividends, based on 50% of its free cash flow. SK Hynix provides a fixed dividend of 1,500 won per share quarterly, also based on 50% of free cash flow.

The core of the dissatisfaction lies in the expectation for returns beyond these established plans. Since the latter half of last year, soaring memory chip profits have intensified calls for expanded dividends, share buybacks, and cancellations. This demand is amplified by the fact that both companies have already committed to distributing a significant percentage of their operating profits as bonuses to employees. Furthermore, the recent sharp decline in semiconductor stock prices, with some halving in value, has exacerbated investor frustration.

SK Hynix faces particular scrutiny due to perceived contrasting approaches between its group chairman, Chey Tae-won, and the company's management. Chey Tae-won recently advised investors to hold onto their stocks, predicting a long-term upward trend, and personally purchased 4.9 billion won worth of common shares during a price slump. In contrast, the company's response to shareholder return queries has been perceived as passive. During an earnings call, management cited restrictions related to its U.S. stock listing process for not disclosing new information, and even after these restrictions eased, their communication with the market has been described as hesitant.

This contrasts sharply with Japanese competitor Kioxia, which recently announced plans for up to 800 billion yen in share buybacks and a 3-for-1 stock split alongside its earnings report, signaling a proactive effort to appease shareholders. A semiconductor company executive acknowledged the market's expectation for increased shareholder returns given the surge in operating profits this year, but offered little beyond that observation.