Key Takeaways:
Samsung Electronics and SK Hynix face growing investor pressure to return more of a combined $263 billion in net cash as AI-driven profits hit records.
"If you stick to something around a 50% free cash flow return, you are going to end up with an incredibly inefficient balance sheet," Richard Clode, portfolio manager at Janus Henderson Investors, said.
Both companies target shareholder returns equivalent to half of free cash flow, while U.S. chipmaker Micron pledged in June to return 100%. SK Hynix shares have retreated about 48% from June record highs and Samsung about 37%.
The wait for payout plans stings because the firms lag peers such as Apple and TSMC in shareholder returns, feeding investor discontent over the so-called Korea discount. JPMorgan cut its SK Hynix target price Wednesday, saying a "clear stance on capital allocation is imperative" to restore stock sentiment.
SK Hynix said during an earnings call last week only that it was considering additional measures to enhance returns and would share plans within this year. "I was really infuriated after the call," said Kim Kyu-shik, portfolio manager at Singapore-based hedge fund Vista Global Asset Management. "Shareholders were listening to the call for some sign of hope."
Samsung said it is discussing its shareholder returns policy for this year and beyond and aims to share details "very soon." "While we remain focused on maintaining a healthy balance sheet to manage cyclical risks and fund growth initiatives, we are also exploring ways to enhance shareholder returns in a sustainable manner," Samsung said in a statement.
Some investors have begun pressing for larger returns and more efficient capital allocation, including limits on employee bonuses. "Retail investors are scared after the recent share-price plunge," said Lee Sang-mok, a representative at ACT, which this week launched a campaign to compel Samsung to hold an extraordinary shareholders' meeting and conduct a $32 billion share buyback. "It seems like there is a lack of urgency at Samsung and SK Hynix."
Samsung has historically kept a large cash reserve because the memory chip business is capital-intensive and prone to boom-and-bust cycles. This year the pair pledged a combined 3,200 trillion won ($2.07 trillion) in domestic investment to meet AI demand. Multi-year supply deals with major customers should help them avoid the excessive capacity expansion that marked previous boom periods, freeing more cash for shareholder returns, said Park Jun-young, analyst at Hanwha Investment & Securities.
The issue has broader implications for government efforts to address the Korea discount, the tendency for Korean companies to trade at lower valuations than peers partly because of weaker shareholder returns. Aadil Ebrahim, group head of equities at Klay Group, cited Apple's 2013 capital-return program as a precedent, when the firm planned to return $100 billion through 2015 including a six-fold boost to its buyback to $60 billion. "Improving capital allocation could play an important role in narrowing that discount over time," Ebrahim said.
The record cash generation gives both companies room to expand payouts while funding investment, Ebrahim said, arguing it was not a "binary choice" between the two. Investors will watch for SK Hynix's return plan, expected within this year, and any Samsung announcement on its policy for 2026 and beyond.
This article is for informational purposes only and does not constitute investment advice.
