Samsung has announced financial results for the third quarter ended September 30, 2015. Samsung posted KRW 51.68 trillion in consolidated revenue and KRW 7.39 trillion in operating profit for the quarter.
Overall, revenue increased by approximately 6 percent quarter-on-quarter (QoQ), driven mainly by the Semiconductor Business and the Display Panel segment. Operating profits increased by KRW 500 billion QoQ due to a favorable exchange rate brought on by the weak Korean Won against key currencies.
All in all, the impact of the exchange rate for the quarter yielded gains of approximately KRW 800 billion, which was generated mostly from the components business.
In the fourth quarter, the company expects earnings to decline from the earlier quarter, as it does not expect the foreign exchange rate to have a positive effect in the fourth quarter.
While concerns remain over slower seasonality for memory products and weak supply and demand in the LCD market, the company expects the System LSI business to continue solid earnings due to the growth of the 14-nanometer (nm) foundry business and also expects OLED to maintain its solid earnings.
The CE Division will actively expand sales during the year-end peak season, and will strive to maintain solid earnings for the IT& Mobile Communications (IM) Division with the expansion of Galaxy Note5 sales and by improving profitability of flagship smartphones.
In 2016, the company aims to continue growth and achieve strong profitability by enhancing business competitiveness, which will be possible by improving our technological leadership and strengthening our software competency.
The semiconductor business will focus on expanding shipments of high value-added memory products, reinforcing V-NAND technology competitiveness, and diversifying its 14nm customer base. For the display business, the company will concentrate on improving LCD cost efficiency as conditions for the LCD market may worsen due to increasing supply. For OLED, the company will continue to expand its customer bases.
For the IM business, the company will strive to maintain profitability by reinforcing smartphone competitiveness and strengthening service and software capabilities including Samsung Pay, as well as effectively managing costs.
The CE Division expects an increase in demand for TVs YoY due to upcoming global sports events like the Olympics, and plans to increase sales of its premium product line-up.
Meanwhile, capital expenditure for the third quarter was KRW 6 trillion, which includes KRW 3.7 trillion for the Semiconductor Business, KRW 1.4 trillion for the Display Segment. All told, capex from January to September totaled KRW 19.2 trillion.
Capital expenditure in 2015 is projected to amount to KRW 27 trillion, which is a 14-percent increase YoY. The Semiconductor Business will have invested a total of KRW 15 trillion and the Display Segment will have executed KRW 5.5 trillion in capex this year.
The increase in investments will focus on reinforcing leadership in advanced technology like V-NAND and streamlining production lines for LCDs.
Semiconductor Reinforces Market Leadership
The Semiconductor Business posted KRW 12.82 trillion in consolidated revenue and KRW 3.66 trillion in operating profit for the quarter.
This quarter, the memory market saw an increase in demand despite less than expected growth of IT products. In particular, demand increased QoQ driven by an overall increase in capacity in chips and the launch of flagship smartphones and increased demand by data centers which have been expanding their cloud service.
This quarter, the memory demand increased QoQ mainly driven by an increase in memory across applications. In particular, demand was driven by the launch of flagship smartphones and by data centers which have been expanding their clouding service.
Although the memory market in the fourth quarter is expected to see slower seasonality compared with the previous years, there will be steady demand due to the increased adoption of new interface products such as DDR4, LPDDR4, storage increase in smartphones, and higher penetration of SSDs.
For DRAM, Samsung will continue to expand its 20-nm process migration and actively respond to demand for high value-added products. For NAND, the company will continue to expand the 10-nm class migration and increase the supply of SSD with third-generation V-NAND, so as to strengthen its market-leading position.
Memory demand growth in 2016 is expected to be similar to 2015 and the ramp up of 20-nm DRAM and 3D NAND will become an important variable, in terms of supply.
Samsung plans to strengthen its market-leading position by increasing sales of high value-added products including 20-nm DRAM, 10-nanometer-class NAND, and V-NAND.
In the third quarter, revenue for the System LSI business improved QoQ driven by the initial supply of 14nm foundry products and solid demand for LSI products such as CMOS image sensors.
Although the System LSI business expects slower seasonality in the fourth quarter, it expects to improve revenue with an increase in 14nm foundry supply.
In 2016, the System LSI business will focus on diversifying customer base and product line-ups based on its 14-nm process technology in order to strengthen the basis of stable future growth.
OLED Panels Record Improved Profits
The Display Panel segment posted KRW 7.49 trillion in consolidated revenue and KRW 930 billion in operating profit for the quarter.
For LCDs, despite a slowdown in demand and a decline in the average sales price (ASP), the company registered solid revenues thanks to an increase in shipments due to the trend toward larger size and high resolution TV.
Although the LCD panel market in 2016 is expected to face tough market conditions, Samsung Electronics will continuously focus on improving cost competitiveness and inventory management.
For OLED panels, earnings increased QoQ due to the release of new high-end smartphone panels for major customers, expansion of the customer base, and higher operation ratio and the company will continue to focus on improving cost competitiveness and reinforce mid-low end line up next quarter. Although the smartphone market in 2016 is expected to slow down YoY, the company plans to diversify its product line up and continue to expand its customer base.
Additionally, the Display Panel segment will reinforce the company’s leadership by developing new products to secure new growth engines. To this end, we will seek new applications including transparent and mirror displays, along with head-mounted and automotive display among many others.
New Mobile Products Drive Sales
The IM division posted KRW 26.61 trillion won in consolidated revenue and KRW 2.40 trillion in operating profit for the quarter.
Samsung saw a significant increase in sales of smartphones in the quarter, compared with the second quarter with increased shipments of Galaxy Note5, Galaxy S6 Edge+ and the Galaxy A and J series.
However, due to the price adjustment of Galaxy S6 and Galaxy S6 Edge, and increased shipments of mid-to-low end smartphones, revenue increased slightly whereas profit decreased QoQ.
Large screen smartphones released in the quarter are receiving positive feedback from markets and they are expected to exceed in shipments reached by their predecessors.
As for tablets, the company expects shipment volume and revenue to be similar to last quarter’s.
Looking ahead, global smartphone and tablets sales in the fourth quarter are expected to improve QoQ driven by higher market demand toward the end of the year, but competition is expected to get stronger.
As for smartphones, the company will focus on maintaining a profit level similar to the previous quarter by expanding product sales for each price segment that were introduced in the third quarter, and by continuously improving efficiency in the expenses.
Meanwhile, tablet shipments will increase QoQ on the back of new orders for the Galaxy Tab S2 and A series.
In 2016, the growth rate for the smartphone market is expected to slow down continuously, compared with previous years. However, the company will reinforce its premium products and streamline the line-up to increase sales and to maintain solid business performance.
In addition, the company seeks to facilitate the global expansion of Samsung Pay, and reinforce the competitiveness of wearable devices to actively respond to market needs.
Growth of Premium Products Sales to Strengthen Market Leadership
The Consumer Electronics Division, encompassing the Visual Display (VD), Digital Appliances (DA), Printing Solutions, and Health and Medical Equipment (HME) businesses posted KRW 11.59 trillion in consolidated revenue and KRW 360 billion in operating profit for the third quarter.
Earnings for Samsung’s VD business improved QoQ led by increased sales of UHD TVs and large-size TVs that are 60 inches and above.
While the market demand in the fourth quarter is expected to significantly increase by entering the year-end peak season, competition among competitors will intensify, and the company will strive for earning improvement by increasing sales of premium products through various promotion activities catered to local markets and different distribution channels in time with the holiday season.
Next year, as the TV market is expected to grow riding on sports events including the Olympic and the Eurocup, Samsung work to shore up profitability by increasing the sales of premium products such as SUHD, large-size and curved TVs.
The DA business posted solid earnings from the previous quarter, due to increased sales of premium products in developed market.
In the ensuing fourth quarter, the company will focus on increasing sales by strengthening seasonal promotions and launching new products including ‘AddWash’ washing machines. For next year, the company will continue to sustain growth and secure profitability by introducing innovative products and expanding the enterprise business.
※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2014~2015.3Q)
Note 1: Sales for each business include intersegment sales
Note 2: CE (Consumer Electronics), IM (IT & Mobile Communications), DS (Device Solutions), DP (Display Panel)
Note 3: Information on annual earnings is stated according to the business divisions as of 2015.
