Samsung Electronics Co., Ltd. today announced
financial results for the second quarter ended June 30, 2016. Samsung’s revenue
for the quarter was KRW 50.94 trillion, an increase of KRW 2.40 trillion YOY,
while operating profit for the quarter was KRW 8.14 trillion, an increase of
KRW 1.24 trillion YOY.
The second quarter saw significant earnings
growth led by strong performance both in the set and component businesses.
Overall earnings of the set business improved YOY as well as QOQ due to the
continuous sales increase of premium products.
The IT & Mobile Communications (IM)
Division saw substantial earnings improvement led by expanded sales of flagship
products such as the Galaxy S7 and S7 edge. A streamlined mid-to low-end
smartphone lineup also contributed to improved profitability. Operating profit
for the IM Division was KRW 4.32 trillion.
The Consumer Electronics (CE) Division
achieved significant earnings growth YOY led by strong sales of its premium
lineup such as SUHD TVs, Chef Collection Refrigerator, AddWash washer and newly
launched air conditioner.
The component business achieved solid
performance although overall earnings decreased YOY due to ASP declines in the
industry. Earnings for the Display Panel segment improved QOQ led by increased
OLED capacity utilization and stabilized LCD panel yields. Demand
for semiconductors for mobile and SSD increased and the company achieved solid
growth with a competitive edge in differentiated products, including
20-nanometer DRAM, V-NAND and 14-nanometer mobile AP.
The company estimated that the stronger Korean
won against major currencies in the second quarter negatively impacted
operating profit by approximately KRW 0.3 trillion, reflected mainly in the component business earnings.
Looking ahead to the second half of 2016, the
company expects its solid performance to continue compared to the first half,
mainly driven by earnings increase in the component business due to sales
growth in high value-added products and stable demand and supply conditions. The
set business is expected to continue its stable earnings while the IM Division
expects marketing expenditure to increase.
In the third quarter, the company expects the
component business to maintain its solid performance due to improved demand and
supply conditions for memory chips and LCD panels and stable earnings for OLED
and System LSI. For the set business, the company forecasts marketing
expenditure for the IM business to increase mainly due to a new flagship
product launch and fierce competition in the industry. Meanwhile, weak
seasonality is likely to impact the CE business.
Capital expenditure (CAPEX) for the second
quarter was KRW 4.2 trillion, which includes KRW 2 trillion for the
Semiconductor business and KRW 1.6 trillion for the Display Panel business. The
accumulated total CAPEX for the first half was KRW 8.8 trillion.
The annual plan for CAPEX has not yet been
confirmed but is projected to increase slightly compared to last year. This
year’s CAPEX will be concentrated on OLED and V-NAND capacity as the company
sees strong market demand for OLED panels for smartphones and V-NAND SSD.
Demand for High-Density, High-Valued
Products Drives Higher Earnings
The Semiconductor business posted KRW 12
trillion in consolidated revenue and KRW 2.64 trillion in operating profit for
the quarter.
The memory business enjoyed solid growth in
demand in the second quarter. Orders for high-density NAND and DRAM products
contributed to solid earnings QOQ. This was coupled by a reduction in cost from
continuous process migration.
In NAND, shipments of SSD remained strong in
the quarter, as enterprise companies increasingly made the transition from HDD
to SSD so as to reduce total cost of ownership (TCO). Orders for high-density
mobile storage products over 32GB also helped drive sales, mainly due to the
expanded adoption by Chinese companies. Samsung actively responded to orders
for high-density mobile products over 64GB and enterprise SSD over 4TB and
increased supply of the industry’s first 48-layer V-NAND.
In DRAM, demand climbed QOQ as smartphone
manufacturers bought more high-density mobile DRAM and demand for high-density
products increased following the launch of a new server platform.
A supply imbalance of some applications led to
greater demand for Samsung’s 20-nanometer high-density, high value-added mobile
and server products.
Looking ahead, for NAND, increased adoption of
high-density products and strong seasonality will further drive demand growth
in the second half. Growth in high-density, premium SSD products will continue,
and the launch of new products by smartphone manufacturers is expected to raise
demand for mobile storage. However, supply and demand will be tighter in the
second half, due to soft industry supply growth.
For DRAM, the launch of new smartphones and
the increasing adoption of 6GB memory chips in high-end smartphones will spur
shipments of mobile DRAM in the second half. Shipments of high-density server
products will be strong, as more data centers make the transition to a new
server platform.
The System LSI business saw gains QOQ, thanks
to stronger demand for 14-nanometer mobile AP in premium smartphones and
increased sales of high megapixel image sensors. In the second half, increased
sales of mid- to low-end mobile AP and LSI products are expected to provide a
stable revenue stream.
Improved Display Performance on Strong
OLED Sales and LCD Recovery
The Display Panel segment posted KRW 6.42
trillion in consolidated revenue and KRW 0.14 trillion in operating profit for
the quarter driven by increased shipments of OLED panels and enhanced yields
for new LCD TV panel production technology.
For the OLED business, second quarter earnings
improved QOQ due to healthy sales of flagship smartphones and increased demand
for flexible panels. High fab utilization rates with the help of an expanded
mid to low-end product portfolio also contributed to improved earnings.
For the LCD business, the second quarter saw a
continuation of QOQ growth under a gradual recovery in the supply-demand
balance. The company was able to achieve growth thanks to improved yields for
new TV panel production technology as well as expanded TV sales particularly
for large-sized UHD panels.
Looking ahead to the second half, the OLED
business, Samsung expects demand for OLED panels to rise despite a likely
slowdown in the smartphone market. To remain competitive, the company plans to
actively address customer demand and reinforce profitability by expanding the
proportion of high value-added products such as flexible and high-resolution
displays. Samsung will also seek to secure supply capacity according to market
demand while expanding its customer base and new applications.
As for the second-half outlook for the LCD
industry, Samsung expects supply and demand to improve thanks to increased
demand under strong seasonality as well as continuous UHD TV market growth and
size migration towards larger screens. In response, the company will focus on
enhancing profitability by improving cost competitiveness and expanding its
portfolio to high value-added products including ultra-large size,
high-resolution and curved panels.
Mobile Unit Strengthens Competitiveness
Amid Slow Global Market
The IM Division posted KRW 26.56 trillion in
consolidated revenue and KRW 4.32 trillion in operating profit for the quarter.
Samsung’s earnings improved QOQ thanks to
strong sales of its flagship Galaxy S7 and S7 edge smartphones. Additionally
the company achieved growth in the second quarter by maintaining the
profitability of mid- to low-end models, such as the Galaxy A and J series, and
improving the product mix by raising the sales proportion of the Galaxy S7 edge
to over 50 percent.
Demand for smartphones and tablets in the
second half is forecast to increase, however, market competition is expected to
strengthen as other companies release new mobile devices. Despite this outlook,
Samsung will focus on YOY earnings increase by strengthening its high-end
line-up and maintaining solid profitability of mid to low-end products.
Looking into the third quarter, the release of
a new large-screen flagship smartphone will help to maintain solid sales of
high-end smartphones led by the Galaxy S7 and S7 edge. Samsung will also focus
on expanding smartphone sales including this year’s new Galaxy A and J series
and the debut of the Galaxy C series exclusively for the China market.
Samsung will focus on increasing smartphone
sales under strong seasonality with the launch of a new model, while expecting
marketing expenses to increase QOQ due to seasonality.
As for the Networks business, earnings
improved due to increased LTE investment of major carriers in the second quarter.
Solid Performance for Consumer
Electronics Despite Sluggish Market
The Consumer Electronics Division -
encompassing the Visual Display (VD), Digital Appliances (DA), Printing
Solutions and Health & Medical Equipment (HME) businesses - posted KRW
11.55 trillion in consolidated revenue and KRW 1.03 trillion in operating
profit for the quarter.
In the second quarter, global TV demand
remained flat YOY due to sluggish economic conditions in major emerging markets
that offset the growth experienced in developed markets. Amid these challenging
conditions, Samsung achieved solid YOY earnings by successfully launching new
products, including SUHD TVs, and increasing sales of premium products on the
back of global sporting events.
For the appliances business in the second
quarter, although growth momentum continued in North America, global demand
declined YOY due to slower growth in China and the impact from the economic
slowdown in emerging markets. Despite these circumstances, earnings improved
from the same period of the previous year thanks to increased sales of premium
products such as the Chef Collection refrigerator and the AddWash and activ
dualwash™ washing
machines.
Looking ahead to the second half, TV demand is
expected to decline YOY due to weakened demand in Europe
and a prolonged economic slowdown in emerging markets. In response, Samsung
will focus on improving profitability and increasing sales through
collaborations with local channel partners and through region-specific
promotions. To reinforce its leadership in the premium TV segment, the company
will also seek to grow sales of its premium SUHD TV line-up, particularly
products featuring its Quantum Dot technology.
Concerning the outlook for appliances in the
second half, market growth is expected to be limited due to the aforementioned
concerns in Europe and emerging markets.
Despite these conditions, Samsung will actively seek opportunities to counter
the challenging market dynamics by launching innovative products that offer
superior consumer experiences. The company also plans to achieve further growth
by enhancing its B2B business in this sector, particularly for built-in
kitchens and system air conditioners.