The second quarter of 2017 ended on the 30th of July and Samsung Electronics has announced its performance. The released results show that there was appreciable improvement Year over Year (YoY) and Quarter on Quarter (QoQ). In the second quarter of 2017, Samsung amassed a revenue of KRW 61 trillion which is a KRW 10.06 trillion increase YoY while the operating profit for the quarter was KRW 14.07 trillion, an increase of KRW 5.92 trillion YoY. The high demand for high-density DRAMs and SSDs for servers boosted Samsung’s second quarter earnings while other component businesses like the Display Panel Business and Mobile Business also contributed significantly.
Samsung’s Total capital Expenditure (CAPEX) for the second quarter of 2017 was KRW 12.7 trillion. KRW 7.5 trillion was expended for the semiconductor business and KRW 4.5 trillion for the display segment. Let us take a complete breakdown of the various businesses and how they fared in the second quarter of 2017.
SEMICONDUCTOR SEGMENT
This segment includes the Memory business, System LSI business, and the Foundry business. Generally, there were high expectations from the semiconductor business and it did not disappoint. It posted KRW 8.03 trillion in operating profits on a consolidated revenue of KRW 17.58 trillion for the quarter.
Memory Business
The high demand for high-density server DRAM and SDD skyrocketed the memory business earnings. The market had favourable supply-demand conditions and prices due to limited supply. Value added products such as datacenter NVMe SSD and enterprise SSD were responsible for NAND earnings while DRAM profits were largely driven by high-density server products and HBM.
System LSI Business
The continuous and steady sales of 14nm processors for mid- to low-end smartphones and the increased sales of processors for flagship smartphones basically boosted the earnings of this business while image sensor sales also contributed to an appreciable extent. Currently, there is a stable supply of 10nm processors as well as OLED DDIs for flagship smartphones thus this business is expected to be stable or perhaps, even increase over the next year especially with its intended diversification into IoT, automotive and VR products.
Foundry Business
The Foundry business became independent from the System LSI this second quarter and for the first time it is standing alone, it did not perform badly. There was mass production of 10nm processors and increased sales of 14nm processors which gave this unit an appreciable earning. It is now looking forward to the development of the 8nm process and preparing advanced infrastructures including EUV.
DISPLAY PANEL SEGMENT
Improved sales of premium OLED displays and high-end, large-size LCD panels boosted the performance of this segment which recorded KRW 7.71 trillion in consolidated revenue and KRW 1.71 trillion in operating profit for the quarter.
OLED Business
The OLED business had an increase in the shipment of premium flexible displays which improved its earnings QoQ. This section is expected to face some future competition especially from LTPS LCDs which will compete with the mid- to low-end rigid OLED segment. In order to maintain profit, Samsung will have to address customer demands through a stable ramp up of the new OLED production line.
LCD Business
The increased sales of high-end, large-size UHD panels amid stable ASP conditions were paramount to the earnings of this segment. The portfolio of high-end products including ultra-large size, high-resolution, frameless and curved panels must now be expanded if Samsung hopes to enhance profitability.
MOBILE SEGMENT
The second quarter of 2017 was a memorable one for the IT & Mobile Communications (IM) Division which recorded KRW 30.01 trillion in consolidated revenue and KRW 4.06 trillion in operating profit.
High-end Smartphones
Samsung flagships, Galaxy S8, and S8+ smartphones were unveiled in March (end of first quarter) so their first impact was felt in the second quarter of 2017. These smartphones have already outsold the Galaxy S7 within three months and the Galaxy S8+ accounted for over 50 percent of the total Galaxy S8 series. This feat is not expected to remain the same because the market is consistently been flooded with flagship devices. However, Samsung will still remain relevant in the market because it will launch the much-expected Galaxy Note with enhanced performance and features.
Low-end Smartphones
The strong sale performance of premium Samsung smartphones did not prevent the mid- to low-end products from suffering poor sales. This imbalance caused the total smartphone shipment to remain at similar levels QoQ. It appears that for top-notch devices, Samsung got the ball rolling already, however it will need to work on its lower end probably by developing the Galaxy J series 2017 editions which are equipped with elegant metal designs, high-definition selfie cameras and specialized services such as Samsung Pay.
Network Business
Increased LTE investment by global partners ensured that the network business enjoyed an improved revenue and profit QoQ. Now, Samsung is focusing on the next generation network business such as IoT while continuing to expand LTE-A into major advanced markets.
CUSTOMER ELECTRONICS SEGMENT
This division which comprises of Visual Display and Digital Appliances businesses focuses mainly on premium products. It recorded KRW 10.92 trillion in consolidated revenue and KRW 0.32 trillion in operating profit for the second quarter. Samsung maintained its top position in the premium market by boosting sales of UHD and ultra large-sized TVs, however, it generally experienced a market demand declined YoY due to the 2016 high demand from the major global sporting event. The halt in the Chinese market also contributed to this decline. Generally, its profit declined YoY due to increased panel prices.
Appliance Market
In the appliances market, Samsung recorded increased earnings mostly from premium products such as Wind-Free air conditioner. Demand varied globally. The Korean market showed high interest in air conditioners while there was a moderate demand increase in the North American market as well as economic recovery in Southwest Asia and CIS. Overall, profit declined YoY probably due to increased raw material costs
Digital Appliances Business
In the digital segment, Samsung will seek to blockbuster its relationship with distributors in order to improve profitability. It hopes to improve sales on premium products such as Family Hub refrigerators and FlexWash washers. The B2B business will be strengthened with home appliances and system air conditioners.
THIRD QUARTER EXPECTATIONS
In the third quarter, Samsung expects favorable semiconductor conditions to continue, although overall earnings might decline QoQ due to weakened Display Panel. The mobile business may also experience a decline due to the launch of the Note device which “may” reduce the relevance of Galaxy S8 and S8+. Nevertheless, Samsung will improve the lineup efficiency in the mid- to low-end segment to maintain profitability. The System LSI and Foundry businesses are expected to post positive results while the TV business will focus on improving profitability by expanding its high-end offerings which includes ultra-large size and UHD TVs. The Digital Appliances Business will work hard to enhance profits in the B2B segment.
