Posts record operating profit of R48.7 billion (6.72 trillion won) on consolidated revenues of R345.3 billion (47.6 trillion won)
Samsung Electronics Co., Ltd. has announced revenues of R345.3 billion (47.6 trillion won) on a consolidated basis for the second quarter ended June 30, 2012, a 21%increase year-on-year.
For the quarter, the company’s consolidated operating profit reached a record R48.7 billion (6.72 trillion won), representing a 79% increase year-on-year. Consolidated net profit for the April-June period was R37.6 billion (5.19 trillion won).
In its earnings guidance disclosed on July 6, Samsung estimated second quarter consolidated revenues would reach approximately R340.9 billion (47 trillion won) with consolidated operating profit of approximately R48.6 billion (6.7 trillion won).
Samsung posted solid sales and maintained its profit streak in the second quarter across all business segments, excluding semiconductors, amid lingering global business uncertainties. Digital Media & Communications – comprising the Consumer Electronics and IT & Mobile Communications business sectors – accounted for R265.3 billion (36.57 trillion won) in sales, up 37% year-on-year.
For Device Solutions, the results were mixed. While operating profit for the Display Panel segment registered an on-year increase, the Semiconductor Business saw profits drop by 38% compared with the same period last year, despite outperforming the previous quarter.
By business unit, the Mobile Communications Business was one of the leading growth drivers in the June quarter with R148.8 billion (20.52 trillion won) in revenue. With the successful launch of this year’s flagship GALAXY S III smartphone and robust GALAXY Note sales, the handset unit saw earnings jump by 75%from a year earlier.
The Visual Display Business also contributed to earnings gains with its diverse portfolio of TV models for both developed and emerging markets with R62.24 billion (8.58 trillion won) in revenue for the quarter.
“Despite a difficult business environment, we achieved stable profits in the second quarter through our differentiated products and competitive technology,” said Robert Yi, Senior Vice President and Head of Investor Relations. “As we move into the second half, continued fiscal instability in Europe and its effect on the global economy will result in the possibility of a slower-than-expected recovery and intensified market competition.”
Mr. Yi added that despite the economic uncertainties, “Samsung will enhance the competitiveness of our main businesses and reinforce our value-added, differentiated products as a means to improve earnings.”
Overall, the third quarter is expected to be marginally positive as demand for consumer electronics goods, including smartphones and tablets, remains strong and a stream of new products hit the market. Supply for display panels is also expected to increase, as TV makers prepare for the year-end holiday season.
Capex R101.5 billion (14 Trillion Won) in First Half
Capital expenditure in the first six months was R101.5 billion (14 trillion won), with R70.4 billion (9.7 trillion won) invested in the Semiconductor Business and R18.8 billion (2.6 trillion won) in the Display Panel segment. The total capex for the first half accounted for 56% of the annual capex budget of R181.3 billion (25 trillion won) planned for 2012. Capex for the first quarter was R56.5 billion (7.8 trillion won).
Mobile AP Chips Sustain Growth
Samsung’s Semiconductor segment – including the Memory and System LSI businesses – posted an operating profit of R8.05 billion (1.11 trillion won) on revenue of R62.3 billion (8.6 trillion won) for the quarter, which equates to a 6% year-on-year decline in sales.
Weak global demand for PC DRAM chips still weighed on Samsung’s push for a recovery, although it responded to increased orders for server and mobile DRAM and hastened migration to the 30-nanometer and below process.
The NAND market picked up on higher OEM-related demand, improving quarter-on-quarter sales, particularly in solution products such as Solid State Drives (SSDs) for notebook PCs and Embedded Multimedia Cards (eMMC), but a steepening price decline hampered stable growth.
The System LSI Business, which creates application processors (AP) and image sensors for smartphones, is forecasted to maintain profitability in the third quarter as demand for faster and higher-capacity chips used in mobile devices increases.
Samsung will also look to gain a leading edge in the mobile AP business, following the recent announcement of our acquisition of CSR’s mobile business and NanoRadio, which we expect to reinforce our already differentiated mobile AP technology.
In the third quarter, we anticipate a weaker-than-expected recovery in demand for PC DRAM due to lackluster back-to-school orders and intensifying competition.
In contrast, we expect market conditions for NAND to improve in the lead-up to the National Day and Black Friday holidays in China and the U.S., respectively. Samsung will continue to concentrate on value-added products such as server and mobile DRAM.
Display Panel Continues Improvement
The Display Panel segment recorded an operating profit of R5.4 billion (750 billion won) on revenue of R59.8 billion (8.25 trillion won). This amounted to a R3.4 billion (470 billion won) increase in profit from the previous quarter and a 16% increase in sales compared to the same period last year.
Despite weaker than expected panel demand due to the economic slowdown in Europe and low seasonality, Samsung’s total TV panel shipments increased in the low 10% range on-year due to strong sales of high, value-added products such as panels for 3D TVs and LED TVs.
Looking ahead, demand for TV panels is expected to grow in the next quarter as TV makers prepare for the end-of-year high-demand season and the Chinese National Day holidays. The effect of an energy saving subsidy in China is also expected to stimulate demand for LED TV products.
For the IT panel sector, the continuation of weak demand for panels used in notebook PCs and monitors was offset by strong demand for tablet PC panels. Launches of new smartphone products also contributed to continued profitability in OLED panels.
In the third quarter, economic uncertainty in developed markets and the sluggish market demand for notebook PCs and monitors is expected to dampen overall demand. The expansion and diversification of the tablet PC market, however, is forecast to fuel an increase in demand for tablet PC panels and Samsung will aim to expand sales of LCD and OLED panels for smartphones.
Sales of Smart Devices Lead Gains
The IT & Mobile Communications division, comprising Mobile Communications, Telecommunication Systems, IT Solutions and Digital Imaging, registered quarterly operating profits of R30.3 billion (4.19 trillion won) for the second quarter. Revenue reached, R174.3 billion (24.04 trillion won) and the mobile unit accounted for R148.8 billion (20.52 trillion won), a 75% increase year-on-year.
The highly anticipated launch of GALAXY S III and upbeat sales of GALAXY Note, along with a more competitive average selling price (ASP) than the previous quarter, have cushioned an on-quarter operating loss brought on by the seasonably weak earnings of businesses in IT Solutions and Telecommunication Systems.
Handset shipments gained quarter-on-quarter and year-on-year, driven mainly by global orders for premium smartphones.
A sales decline in Long Term Evolution (LTE) wireless broadband technology equipment and slow demand for PCs and printers in the quarter will turn around in the July-September quarter with the expansion of LTE networks in developed countries and modest revenue growth in IT products.
The smartphone market, in particular, will continue to be profitable as consumers are given a wider choice of new products at a wider range of prices while orders from emerging markets increase.
In the third quarter, Samsung expects to further strengthen its leadership in the high-end smartphone market with the sales of GALAXY S III and also in the LTE equipment business with new devices.
TV Demand Boosts Profitability
The Consumer Electronics Division – encompassing the Visual Display and Digital Appliances businesses – posted revenue of R88.14 billion (12.15 trillion won) for the second quarter, a 7%increase year-on-year. The operating profit of R5.51 billion (760 billion won) represented an increase of 66 percent compared with the same period last year.
Although demand for TVs remained flat year-on-year, Samsung posted improvements in both shipments and profitability. Increased sales in developed markets for the company’s premium TVs, such as the flagship ES7000 and ES8000 models, and expansion of region-specific LED TV models in emerging markets spurred a significant lift in earnings compared with the same quarter of last year.
This increase in demand saw Samsung increase its portion of LED TV sales from the mid 60% range to a mid 80% share, quarter-on-quarter.
Heading into the third quarter, although growth in developed markets may stall, Samsung aims to expand its presence in emerging markets with region-specific products and entry-level LED TVs. The company will also look to continue its leadership in Smart TVs in developed markets with continued cooperation with media and content providers.
As for Digital Appliances, sales of air conditioners rose on the back of strong seasonal demand and favorable market conditions in emerging markets. Moving into the third quarter, Samsung will focus on expanding sales of premium products and stabilising overseas operations in the face of a possible slowdown in emerging markets and weak consumer sentiment in developed markets.