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Samsung Electronics Q4 profit rose 26.4 percent

Christian Fernsby |
Samsung Electronics reported financial results for the fourth quarter and the fiscal year 2020.

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Topics: SAMSUNG   

The Company posted KRW 61.55 trillion in consolidated revenue and KRW 9.05 trillion in operating profit in the quarter ended December 31, 2020. For the entire year, it reported KRW 236.81 trillion in revenue and KRW 35.99 trillion in operating profit.

Although challenges from the COVID-19 pandemic continue, company-wide efforts to ensure a stable supply of products and services globally helped Samsung’s fourth-quarter results. Profit rose 26.4 percent year-on-year led by display and memory chip businesses, but fell 26.7 percent from the third quarter due to weaker memory prices and sluggish consumer products sales, as well as higher marketing costs and negative impact from the Korean won’s appreciation.

The local currency’s value rose sharply against the U.S. dollar, euro and key emerging market currencies, resulting in a negative impact equivalent to about KRW 1.4 trillion compared with the previous quarter, mostly in semiconductor and display businesses.

The Memory Business saw earnings decline quarter-on-quarter despite solid shipments, weighed down by a continued decline in chip prices, the won’s strength and initial costs from new production lines. The System LSI and the Foundry Business also took a hit from the stronger won, even though orders from major global customers increased. Profit from the Display Panel Business grew significantly both QoQ and YoY, thanks to a sharp rise in mobile display production and improved demand in the large panel market.

The Mobile Communications Business posted a QoQ decline in profit due to weaker sales and higher marketing spending. However, the results were in line with its earnings a year earlier, supported by continued efforts to optimize costs. The Networks Business saw improved earnings on the back of 5G service expansion in Korea and continuing 4G/5G rollouts globally.

The Consumer Electronics Division reported a quarterly fall in profit, as increased costs outweighed stronger year-end sales in developed markets.

Looking ahead, Samsung Electronics expects overall profit to weaken in the first quarter of 2021. The Memory Business will likely continue to be affected by the ongoing strength in the won and costs associated with new production lines, despite solid demand from mobile products and data centers.

The System LSI Business plans to expand shipments of system-on-chips (SoCs), image sensors and display driver ICs (DDIs), while the Foundry Business is set to increase 5-nm SoC and 8-nm high-performance computing (HPC) chip production. In displays, mobile display sales are expected to drop considerably after a strong performance in the fourth quarter.

The Mobile Communications Business is set to see robust sales of flagship smartphones such as the Galaxy S21 and new mass market models. The Consumer Electronics Division will likely post stable results despite weakness in seasonal demand, underpinned by new product launches and introduction of new premium lineups.

For 2021, the Company expects a recovery in overall global demand but uncertainties persist over the possibility of recurring COVID-19 waves.

The Memory Business, specifically the DRAM market, is expected to see a recovery during the first half thanks to strong demand from mobile and server applications, but geopolitical and economic uncertainties will likely continue. The Company will accelerate migration to 1z-nm DRAM and 6th-generation V-NAND to enhance cost competitiveness and technology leadership. The System LSI Business will actively respond to demand for 5G SoCs and high-resolution sensors with differentiated products. The Foundry Business also aims to expand mass production based on the 5-nm extreme ultraviolet lithography (EUV) process and diversify application areas.

The Display Panel Business will further enhance its leadership in mobile displays while focusing on timely development of new quantum-dot (QD) display products in large-sized panels.

The Mobile Communications Business plans to increase sales of flagship, foldable and new mass market 5G models while continuing efforts to improve costs. The Consumer Electronics Division aims to expand its premium lineup including Neo QLED, Micro LED TVs and Bespoke appliances.

Samsung’s capital expenditures in 2020 reached a total of KRW 38.5 trillion, including KRW 32.9 trillion spent on semiconductors and KRW 3.9 trillion on displays. Spending on memory semiconductors grew significantly for capacity expansion and introduction of advanced process technology, while investment in the Foundry Business also jumped on expansion of 5-nm EUV facility. The Company also increased investment for QD displays and new mobile screen technologies.

The Semiconductor businesses posted KRW 18.18 trillion in consolidated revenue and KRW 3.85 trillion in operating profit in the fourth quarter.

Overall demand in the Memory Business was strong, led by continued strong mobile demand, as well as solid demand from data centers and PCs. However, earnings declined due to the weak dollar and initial costs associated with ramping up new production lines.

For DRAM, mobile demand showed strength as major customers launched new smartphone models and as consumer confidence improved, while server demand was solid with cloud computing companies increasing investment in data centers. PC demand remained strong, led by Chromebooks and gaming notebooks, and graphic demand increased with the release of new GPUs and gaming consoles. The Company achieved solid shipments by actively addressing demand from mobile and as sales of consumer products, including TVs, increased.

For NAND, mobile demand remained solid helped by increasing demand from Chinese customers and growth in content-per-box. For servers, demand was relatively weak as inventory adjustments at major OEMs continued, while for client SSD, low- to mid-priced notebook sales was strong on the back of work-from-home demand along with demand for new gaming consoles.

Looking to the first quarter, earnings are expected to decline from the previous quarter due to continued weakness in the dollar and costs related to the ramp-up of new production lines.

For DRAM, the market for mobile is expected to expand with the release of new products and wider support of 5G for low- and mid-end smartphones. For servers, demand is improving as data centers increase purchasing and boost capex following inventory adjustments. PC demand is projected to be solid as demand for notebooks remain robust. The Company plans to optimize its product mix to actively address demand across all applications and strengthen market leadership and cost competitiveness.

As for NAND, mobile demand is expected to be solid despite weak seasonality as demand from Chinese customers increase and sales of 5G smartphones grow. For server SSD, data center demand is expected to gradually increase, while demand for client SSD is projected to remain robust. The Company will actively respond to demand from mobile and client SSD, while increasing production of 6th-generation V-NAND to strengthen technology leadership and cost competitiveness.

In 2021, business activities delayed by COVID-19 are expected to regain momentum. Mobile demand is expected to be robust on the back of Chinese customers and growth in content-per-box, as well as the expansion of 5G models. Server demand is likely to recover as data centers resume investment, while content-per-box for PCs will continue to increase. However, uncertainties remain such as geopolitical risks and a weaker dollar.

The Company will maintain flexibility in the product mix and accelerate the conversion to 1z-nm DRAM and 6th-generation V-NAND to strengthen cost and product competitiveness The Company will also continue cooperating with major global customers and proactively introduce next-generation products such as the world’s first multi-step EUV-based 1a-nm DRAM and 7th-generation V-NAND.

Earnings for the System LSI Business declined due to a weak dollar, even as demand for mobile DDIs and image sensors increased. With the release of the Exynos 1080, the Company’s first 5-nm SoC product, we solidified our foothold to continue leading the market and expand our customer base.

In the first quarter, demand is expected to increase mainly for mobile SoCs and we plan to expand supply of 5G mobile processors and ultra-high-pixel image sensors for new flagship and high-end smartphones in Korea and China. For 2021, amid uncertainties including the possibility of a prolonged pandemic, the market is expected to recover on increased demand from smartphone manufacturers and the Company aims to achieve double-digit revenue growth for the year.

The Foundry Business achieved a new record quarterly revenue, led by strong demand for 5G chips and image sensors as well as increased demand for high-performance computing chips. However, earnings declined due to the foreign exchange impact. The Company completed the design of 2nd generation 5-nm and 1st generation 4-nm mobile products, proving our leading-edge process competitiveness.

In the first quarter, demand is likely to remain strong for all process technologies and supply shortages is expected to continue for the time being. The Company will operate its lines flexibly by expanding the portion of advanced processes and will focus on developing 1st and 2nd generation 3-nm processes. For 2021, the overall foundry market will continue to grow and the Company plans to secure more global customers and diversify applications by expanding capacity centered on advanced processes.

The Display Panel Business posted KRW 9.96 trillion in consolidated revenue and KRW 1.75 trillion in operating profit for the fourth quarter. It recorded its highest-ever quarterly earnings, thanks to an ongoing recovery in demand for smartphones and TVs amid an economic rebound during the second half of 2020.

Mobile display earnings grew sharply QoQ as surging demand from major customers lifted factory utilization. Losses from large displays narrowed QoQ, helped by steady demand and rising average prices of TV and monitor panels, led by the expansion of contactless services.

Looking ahead to the first quarter, the Company expects mobile display earnings to decline QoQ due to a decrease in demand from major customers. However, utilization is projected to improve YoY as major customers increase adoption of OLED displays within their product lineups to align with the pace of 5G commercialization.

For large displays, the Company is preparing to launch QD Display products as scheduled while also continuing to fulfill LCD orders for some customers as planned.

In 2021, for the mobile display business, the Company expects OLED panel demand to rise for high-end models and OLED penetration to increase in mid-range segments, driven by full-blown expansion of the 5G smartphone market alongside a recovery of smartphone demand.

The Company will further solidify its leadership in the OLED market and diversify applications across note PCs, tablets and automotives, responding to uncertainties from the prolonged impact of the COVID-19 pandemic and increasing competition.

Samsung will also leverage its technological excellence and cost competitiveness and lead growth in innovative form factors such as foldable and slidable displays.

For large displays, the Company will develop QD display products as scheduled and build a stable customer portfolio to create a foundation for QD display to cement its place within premium product segments.

The IT & Mobile Communications Division posted KRW 22.34 trillion in consolidated revenue and KRW 2.42 trillion in operating profit for the fourth quarter.

While overall market demand increased QoQ as a result of strong year-end demand and gradual economic recovery, the Mobile Communications Business saw revenue and profits decrease QoQ on intensifying competition and higher marketing expenses. However, the Company maintained a double-digit profit margin by improving the cost structure through measures such as component standardization.

Looking ahead to the first quarter, market demand for smartphones and tablets is expected to decline QoQ amid weak seasonality. However, both revenue and profit for the Mobile Communications Business are expected to rise, driven by flagship model sales on the launch of the Galaxy S21 series and product mix improvement. Upcoming release of new mass-market products will also contribute to the growth in the first quarter.

In 2021, market demand is likely to recover to pre-COVID levels backed by gradual recovery in the economy and accelerating expansion of the 5G market. The Mobile Communications Business aims to strengthen its leadership in the premium segment through the Galaxy S21 series and expansion of the foldable category including the Galaxy Z Fold and Galaxy Z Flip.

The Company will also strive to improve its overall sales by expanding 5G device lineup for the mass market, as well as tablets and wearable products. It will also continue to expand the Galaxy ecosystem through strategic collaborations with global partners while enhancing the cost structure and operational efficiency further.

For the Networks Business, the Company improved performance QoQ by actively responding to 5G expansion in South Korea as well as growing 4G and 5G services overseas. The Company will continue with its network rollouts focusing on overseas markets including North America and Japan, and actively commercialize 5G network globally while seeking to expand new business opportunities.

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 13.61 trillion in consolidated revenue and KRW 0.82 trillion in operating profit for the fourth quarter of 2020.

In the fourth quarter, earnings for the Visual Display Business decreased QoQ due to intensifying competition in the peak season and rising costs. However, sales improved thanks to strong year-end demand in advanced markets.

The Company responded preemptively by expanding online sales, as well as O2O services. As a result, the Company successfully expanded sales in premium products like QLED, super large screen TVs, and gaming monitors.

In the first quarter, the Company expects the overall TV market to grow YoY despite weak seasonal demand. It will focus on driving sales by successfully launching Neo QLED TVs and prioritizing high-value products such as super large screen TVs and lifestyle TVs, while also developing tailored promotions for each region. For 2021, Samsung will respond to any changes in the global TV market in a flexible manner and leverage its global supply chain management (SCM) capabilities.

For the Digital Appliances Business, the market demand increased slightly in the fourth quarter thanks to expansionary policies and “At-home trend” amid the continuing COVID-19 pandemic. Flexible peak season promotions and premium product sales drove profit higher than last year, in both advanced and emerging markets including India and Latin America.

In 2021, the appliances market is expected to grow from pent-up demand from advanced markets. The Company will continue to focus on premium products, expanding the Bespoke platform to other product categories and enhancing global SCM capabilities. It will also further strengthen online and B2B sales, executing effective and tailored marketing strategies for each region.

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