Samsung Electronics Co., Ltd. today announced a record59.08 trillion won in revenue, on consolidated basis, for the third quarter ended September 30, 2013, which is an increase of 3% Q-on-Q and 13%Y-on-Y.Consolidated operating profit for the quarter logged 10.16 trillion won, an all-time high, representing a 7-percent increase on-quarter and a 26-percent increase on-year. Consolidated net profit for the quarter totaled8.24 trillion won.
In its earnings guidance disclosed on October 4, Samsung estimated third quarter consolidated revenues would reach approximately 59 trillion won with consolidated operating profit of approximately 10.2 trillion won.
Driven by solid sales in the memory segment, the Semiconductor business saw the biggest gains with a 12-percentincrease over the last quarter. Thequarterly revenue was 9.74 trillion won.DRAM for mobile devices, servers and digital game consoles and expansion of 20-nanometer-class process migration shored up profitability.
Amid intensifying market competition,the IT &Mobile Communications division rallied with quarterly revenue of 36.57 trillion won, a 32-percent increase from the previous quarter.Accumulated shipments of smartphones increased in the mid-10 percent range compared to the earlier quarter whileshipments of high-end smartphones reached levels similar to that registered in second quarter.An upswing in shipments of massmarket models helpedto improve earnings.
A decline in demand for flat panel TVsin Europe and China stifled overall growth in global sales but growth in the U.S. and emerging markets helped to offset wider losses. Samsung increased sales in the quarter by expanding its mass-market TV lineup in China and increasing shipments of large-size TVs over 50 inches globally.
As for the Digital AppliancesBusiness, weak seasonal demand compounded by currency depreciation in emerging markets overshadowed Samsung’s robust sales of premium products in major markets and improvements in the mass-market product lineup.
On the components’ side, the Display Panel segment’s profit margin was dampened by a decline in panel price, the slowing PC market and a decline in TV demand in Europe. Thesechallengingconditions saw the panel-making unit’s operating profits fall by 12 percent from the previous quarter.
Samsung’s Semiconductor business posted significant gains with high-value added products for mobile devices and datacenters. Increased geometry migration to 20-nanometer-class process for DRAM and 10-nanometer-class migration for NAND flash also added to profit margins.
“Despite currency depreciation in emerging markets, increased price competition and global market uncertainties, we were able to reach record earnings driven by solid earnings in our core businesses including memory and smartphone.” said Robert Yi, Senior Vice President and Head of Investor Relations.
Mr. Yi added,“Although we expect demand to increase next quarter due to peak seasonality, lingering macro-economic issues and intensifying market competition will remain in the fourth quarter.”
Looking ahead, the Memory business will continue to see strong demand for mobile and server DRAM but under tighter supply. Orders for NAND chips for mobile and Solid State Drives (SSDs) will be bright. For System LSI, AP demand will pick up thanks increased sales momentum by our customers, but we expect significant earnings growth starting 2015.
Sales of smartphones and tablet PCs will gain momentum due to year-end promotions over the holiday season and an improved lineup of mass-market smartphones.
Global demand for home appliances will remain weak due to global economic uncertaintiesand the Display Panel segment will be affected by low TV demand despite peak seasonality.
In the third quarter, capital expenditureamounted to 6 trillion won, in which the Semiconductor business was responsible for 2.6 trillion won and 1.9 trillion won in spending was accredited to the Display Panel segment. All told, a total of 15 trillion won or about 63 percent of the planned 24 trillion won in capex has been executed.
Investment in the fourth quarter is anticipated to increase due to the NAND fabrication plant in Xi’an, China and the LCD manufacturing facility in Suzhou, China. Including investmentin the 20-nanometer-class process migration for system LSI,we expect accumulated capex to be in line with our previously announced amount, which is more than 24 trillion won.
Chips Back in the Game
Samsung’s Semiconductor businesses – including Memory and System LSI – posted 2.06 in operating profits for the quarter on9.74 trillion won in consolidated revenue. The Memory chip business claimed the bulk ofsales with 6.37 trillion won in revenue, a 12-percent jumpin gains quarter-on-quarter.
Pronouncedgrowth in market demand for mobile DRAM chips for smartphones and strong growth in graphics DRAM chips for video game consoles led gains. Orders for PC DRAM increased due to seasonality and demand for server DRAM for datacenters remained solid.
TheNAND flash memory segment sustained profitability backed by market demand for new mobile devices and wider adoption in datacenters and SSDs.
Looking ahead, mobile DRAM shipments will stay strong with the release of various low- to high-end smartphones as the holiday season nears. With the rise in demand for specialty DRAM and NAND, the market will experience tighter supply.
Samsung will improve profitability with a portfolio of differentiated products including LPDDR3, eMCP and mobile solutions and further geometry migration to 20-nanometer-class process technology.
By diversifying its product portfolio and consumer base, and by gearingup development of20-nanometer- and 14-nanometer-class process technology, Samsung aims to achieve a stable level of growth.
Premium Displays Keep Panels in Profit
The Display Panel business posted an operating profit of 980 billion wonin the third quarter on revenues of 8.09 trillion won which equated to a 1-percent decrease in sales compared to the previous quarter.
In the third quarter, demand for TV panels declined in Europe and China which led to a drop in both shipments and selling price. For IT panels, demand increased as tablet makers prepared new products for the year-end peak season, however demand for laptop and monitor panels continued its slump.
In this market, Samsung increased TV panel shipments quarter-on-quarter in the mid-single digit percentage range although a drop in average selling price impacted profitability. The company’s shipments of OLED panels rose for the quarter on continued strong demand from smartphone makers, although capacity expansion costs led to a quarterly decline in profit.
Looking to the fourth quarter, Samsung expects high seasonality to lift TV panel demand, including shipments of premium panels, although high inventories may push down the selling price of large TV panels. Samsung aims to enhance its premium product lineup in UHD panels and in the over 60-inch panel class, and will focus on growing sales channels in China through the company’s new fabrication facility in Suzhou, China.
Concerning the outlook for IT panels, although the PC and monitor sector will remain weak, demand for tablet panels will continue to exhibit positive growth momentum. Samsung plans to enhance competitiveness by delivering new products in a timely manner and expand its customer base.
For OLED panels, Samsung hopes to reinforce its market leadership through differentiated product offerings, including curved displays, although increased R&D and facility costs may impact profitability.
Smart phones Lead Solid Earnings
The IT & Mobile Communications (IM) division – consisting of Mobile Communications, Networks, and Digital Imaging businesses – posted operating profits of 6.70 trillion won on 36.57 trillion won in revenue for the September quarter. Out of the total IM earnings, the mobile business was responsible for 35.20 trillion won.
Thanks to strong seasonal demand and the company’s diversified product lineup, profit margin for IM climbed 7 percent compared with the prior quarter. In addition to increases in both shipments and revenue over the previous quarter, more efficient marketing spending and other cost reductions led to increased operating profit.
High-end smartphone shipments stayed at a similar level as last quarter with the launch of the flagship GALAXY Note3, whereas shipments of massmarket smartphones increased on quarter. Overall, total smartphone shipments increased in the mid-10 percent range in the third quarter. For tablets, sales increased in the mid-20 percent range relative to the previous quarter, driven by enhanced product lineups and GALAXY Tab3 expansion.
Looking ahead, Samsung’s smartphone and tablet sales are expected to increase in the fourth quarter thanks to strong seasonality and a full line-up strategy. Samsung is aiming to increase sales in new high-end products in developed markets as well as in massmarket products in emerging markets.
As for tablet devices, Samsung’s global sales will continue to grow through its retail capability and established lineup from the GALAXY Note 8.0 to the GALAXY Tab3 series. Samsung expects smartphone shipments to increase by a low single-digit percentage relative to the previous quarter, while tablet sales are anticipated to increase by more than 20 percent. In the case of PCs, the company will continue to enhance its product mix by focusing on mid- to high-end products.
As for the product mix, Samsung’s smartphone shipments will remain higher than 70 percent of total mobile phone shipments. The ASP for smartphones is forecast to stay flat or increase slightly.
Samsung’s Networks Business will continue to increase LTE equipment sales by maximizing the opportunity of LTE network expansion by global carriers.
Differentiation to Drive TV Demand
The Consumer Electronics Division – including the Visual Display and Digital Appliances businesses – posted an operating profit of 350 billion won for the quarter on revenues of 12.05 trillion won. This represented a 6-percent dip in sales on-quarter amid weaker seasonal demand. The Visual Display Business accounted for 7.68 trillion won of earnings.
In the TV market, Europe and China posted negative growth for the quarter while North America and emerging markets continued growth momentum. Samsung began expanding its premium TV lineup from developed to emerging economies to solidify its leadership in the industry. In China, the company began expanding its distribution networks and strengthening its product lineup which helped it to achieve robust quarter-on-quarter sales growth in the country.
Moving into the fourth quarter, on-quarter market growth is forecast on the back of strong year-end seasonality and an expected lift in TV demand from emerging markets during the lead-in to next year’s major football event.
To maintain market leadership, Samsung will focus on advanced design and technology to expand premium TV sales of UHD TVs and large-sized TVs of over 60 inches, while promoting region-specific and mass market LED TV models. To capitalize on strong seasonal demand, the company will promote its differentiated feature offerings including upgradable Evolution Kits, Smart TV content and services and high picture quality, amid intensifying competition.
In the home appliances market, despite challenging global economic conditions persisting in the third quarter, Samsung increased sales of premium products in major markets. Overall, however, sales declined on quarter due to weaker seasonality for air conditioners and currency depreciation in emerging markets. Looking ahead, although gains from higher seasonal demand in the coming quarter are unlikely to be significant and economic uncertainty will remain in the global market, Samsung will continue to focus on improving profitability and increasing sales though greater operational efficiency.