Friday, 29 July 2016 17:12

Samsung Q2 results are stellar (with commentary) Featured

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Samsung’s Q2 results are on track and reflect better cost controls and increased sales across most divisions. The star performer was its Galaxy S7 series which beat the iPhone in the US.

Samsung report in South Korean Won – to get USD divide by .9 or multiply by .1 for AUD. Either way, the figures in rrillions are impressive.

Its CE (Consumer Electronics) division sold KRW11.55 trillion and made a 1.03 trillion profit, its IM (IT and Mobile) sold 26.56 trillion and made 4.3 trillion, its display panel, and semiconductor business sold 18.43 trillion and made 2.79 trillion. Total operating profit for Q2 was 8.14 trillion – well up on last year’s Q2 and the highest since Q1, 2014.

It has put the recovery down to providing a wide range of products from value to premium and investing in leading edge technology and research and development. It would be hard to find a sector in which it does not lead.

Semiconductor

The memory business enjoyed solid growth in demand in the second quarter. Orders for high-density NAND and DRAM products, coupled with a reduction in cost from continuous process migration, meant higher profit.

SSD shipments remained strong as companies increasingly made the transition from HDD to SSD. 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 the supply of the industry’s first 48-layer V-NAND.

Display

Sales were driven by increased shipments of small form factor OLED panels and enhanced yields for new large form factor LCD TV panel production technology.

OLED experienced healthy sales for use in Samsung and other flagship smartphones and increased demand for flexible panels. High fab utilisation rates, with the help of an expanded mid to low-end product portfolio, also contributed to improved earnings.

LCD saw a gradual recovery in the supply-demand balance. It achieved growth via improved yields for new TV panel production technology as well as expanded TV sales, particularly for large-sized UHD panels.

Samsung expects demand for OLED panels to increase despite a likely slowdown in the smartphone market. It 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.

Mobile

Samsung had strong sales of its flagship Galaxy S7, Edge, Active and Olympic smartphones – the last accounted for more than 50% of sales. It also did well in mid- to low-end models, such as the Galaxy A and J series.

While it is traditionally one of the first to market with a new model each year, it is not overly concerned about the impact of Apple’s iPhone (September) or the plethora of other brands as it has established a solid eco-system with high brand retention and satisfaction. It also has a later release of the S7 Active, the Note 7 and a range of low-mid market handsets.

Consumer electronics

Global TV demand remained flat due to sluggish economic conditions in major emerging markets that offset the growth experienced in developed markets. It achieved solid year-on-year earnings by successfully launching new products, including SUHD TVs, and increasing sales of premium products on the back of global sporting events.

The appliances business has growth in North America, but global demand declined due to slower growth in China and the impact of the economic slowdown in emerging markets. Earnings improved due to increased sales of premium products such as the Chef Collection refrigerator, and the AddWash and activ dualwash washing machines.

Samsung is banking on market acceptance of its Quantum Dot LCD TVs (costs less to make and sell than OLED) and the move to UHD and HRDR.

Comment

I said earlier that it would be hard to find a sector it did not lead in – smartphones, semiconductor, memory, SSD, appliances, and more. But hark back five years and it may have been difficult to find a segment in which it was a leader.

Samsung has undergone an amazing turnaround from a South Korean mega-manufacturer to a desirable brand with considerable design credibility.

Its S7 series is the class-leading Android smartphone with almost every possible feature included. Others, like its South Korean sibling LG also make excellent smartphones, but at the moment the Samsung brand leads. To quote “It has had staggering sales success.”

Its Quantum Dot TVs are impressive. Not as good as LG’s amazing OLED but also not as pricey. In the consumer space, according to my retail sources, Samsung is outselling other brands “two to one” based on perceived quality for the price (over its entire range).

In the domestic appliance space, Samsung is neck and neck with LG but rather than compete on price both apparently are competing on premium features and leaving no-name Chinese brands to paddle in the cut-throat commodity market.

Electronics is the stand-out area. Samsung makes processors, memory, components and more for its devices and that gives it a huge step up from say, Apple, that has to buy all components and has their iPhones, etc., assembled by third parties like FoxConn, often on Samsung-made robotic assembly lines. That is not a tilt at Apple’s design but more a comment that is it not in charge of its supply chain as Samsung is. And as such, Samsung has greater control over costs and volumes when times get tough.

Samsung’s ecosystem is beginning to pay off too. Samsung pay is being globally expanded, and frankly, it will be a cash cow. Its interoperability with smartphones and smart devices make it a no-brainer for users to purchase its TVs. Smart watches, IconX buds, VR headsets, SSD internal and external drives, etc.

It has challengers – the Chinese smartphone makers have it firmly in their sights. The Chinese TV and appliance makers, ditto. You will see Samsung invest more in its ecosystem and importantly service to stay ahead. And it has deep pockets and can meet the competition head on.


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Ray Shaw

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Ray Shaw ray@im.com.au  has a passion for IT ever since building his first computer in 1980. He is a qualified journalist, hosted a consumer IT based radio program on ABC radio for 10 years, has developed world leading software for the events industry and is smart enough to no longer own a retail computer store!

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