Samsung Electronics Co. shares surged after the South Korean tech giant unveiled an unexpected plan to repurchase approximately 10 trillion won ($7.2 billion) of its own stock over the next year. The announcement sparked a sharp 7.5% rise in the company’s stock during Monday’s Seoul trading, following a 7.2% increase on Friday ahead of the news. Despite the recent rally, Samsung’s shares are still down about 28% for the year, primarily due to concerns that its memory chip division is lagging in the rapidly growing artificial intelligence (AI) market.
The buyback plan is seen as a potential catalyst for the stock, with analysts noting it could also strengthen the influence of the founding family. In comparison, rival SK Hynix Inc. has seen a 23% increase in its stock this year, fueled by investor optimism surrounding its AI chip prospects.
“The unexpected buyback comes as a welcome surprise, and we believe it signals Samsung’s management is taking proactive steps to prevent further declines in share price,” said Jay Kwon, an analyst at JPMorgan Chase & Co. “However, we believe that the long-term prospects of the company will depend more on its restructuring and strategy to regain its leadership in tech.”
As part of the first phase of the buyback announced on Friday, Samsung plans to repurchase 3 trillion won worth of shares by February 2025, with all of these shares to be cancelled. The company’s board will determine how to allocate the remaining 7 trillion won.
Sanghyun Park of Clepsydra Capital pointed out that the buyback could also help the founding family consolidate control over Samsung by reducing the number of shares held by outside investors. Additionally, it may provide relief for family members who have pledged company shares as collateral for inheritance taxes and loans, which could be at risk of margin calls if the stock price falls too low.
“Local desks have been buzzing about Samsung’s potential short-term price spike, which could help the family address collateral issues,” Park wrote in a note on Smartkarma. “The stock is likely to stay above the 53,000 won margin call danger zone for a while.”
Despite the buyback, Samsung faces ongoing challenges. The company continues to lag behind Taiwan Semiconductor Manufacturing Co. (TSMC) in the outsourced chipmaking sector and faces stiff competition in the struggling smartphone and consumer electronics markets. While Samsung has stated it is making progress in AI memory chips, some analysts believe a management reshuffle is imminent.
“We anticipate a potential management reshuffle in late November, possibly including significant changes to the chip operations,” wrote Peter Lee, an analyst at Citigroup Inc. He added that the buyback, along with any potential leadership changes, should be well-received by the market.
This stock repurchase plan also comes amid broader efforts by South Korea’s government and market regulators to address the nation’s low stock valuations. Samsung had previously launched buyback programs worth 9.3 trillion won in 2017 and 11.3 trillion won in 2015.
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