Samsung Electronics announced financial results for the first quarter ended March 31, 2015. Revenue was KRW 47.12 trillion, an 11 percent decrease quarter-on-quarter (QOQ).
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Operating profit for the quarter was KRW 5.98 trillion, an increase of KRW 690 billion QOQ.
In the company’s earnings guidance disclosed on April 7, 2015, Samsung estimated first quarter consolidated revenues would reach approximately KRW 47 trillion with consolidated operating profit of approximately KRW 5.9 trillion.
The first quarter saw growth across the Device Solutions (DS) and IT & Mobile Communications (IM) Divisions. The Memory Business further accelerated its 20-nanometer class migration for DRAM, while DDR4/LPDDR4 sales increased for mobile devices and servers.
The Display Panel segment saw profit growth, as OLED panels for smartphones and LCD panels for premium TVs saw increased sales. The Mobile Business also saw profit growth, due to increased sales of new middle- to low-end smartphones, all the while decreasing marketing expenditures.
In the second quarter, the company expects its overall earnings to increase compared to the previous quarter, despite an expected growth in marketing expenditures. With premium smartphone sales entering into full swing, the DS Division is expected to see demand in growth for its semiconductor products.
The System LSI Business is expected to improve its overall business performance through increased supply of 14-nanometer application processors. The Display Panel segment expects smartphone and TV sales to boost its earnings from OLED and LCD panel sales.
The IM Division earnings are expected to grow, due to increased global sales of the Galaxy S6 and S6 edge. Meanwhile, the Consumer Electronics (CE) Division expects to see improvements, as seasonality should improve air conditioner sales, while the flagship SUHD TV sales are expected to increase.
Looking ahead to the rest of 2015, despite strong seasonality, competition is expected to toughen for the set business and there is also a risk of weaker demand due to the weak Euro and emerging market currencies.
For the component business, while the company expects stable supply and demand conditions, weak demand for set products and increase in LCD panel supply may negatively affect earnings. While the information technology (IT) industry has typically had a weak 1H and a strong 2H each year, this may be less so for 2015.
Capital expenditure (CAPEX) for 1Q 2015 totaled KRW 7.2 trillion, including KRW 4.4 trillion for the Semiconductor Business and KRW 500 billion for the Display Panel segment. While we expect the total CAPEX to remain at a similar level to that of 2014, there is a strong possibility that it may increase. CAPEX will be adjusted depending on macroeconomic conditions and each business’ market conditions.
Semiconductors posted KRW 10.27 trillion in consolidated revenue and KRW 2.93 trillion in operating profit for the quarter.
Although the first quarter is generally a low season for DRAM, demand remained high due to flagship smartphone launches and server demand for data centers. Profitability was secured by accelerating 20-nanometer class migration and sales of differentiated products, led by DDR4/LPDDR4.
Solid demand also continued for NAND products, driven by the increasing density of smartphone storage and launches of SSD-adopted high-end notebook PCs. The company secured cost competitiveness of NAND products and increased sales of solution products, such as SSD and UFS.
While seasonality resulted in decreased revenues for the System LSI Business, profitability improved as production began for 14-nanometer mobile application processors.
Looking ahead, flagship smartphone sales are expected to pick up. Also, as the specification of smartphones in general become increasingly sophisticated, demand for mobile chips are expected to grow. Meanwhile, chip demand for servers is expected to grow as new server platforms expand and enterprise SSD adoption increases.
The company will continue to reduce costs by expanding 20-nanometer migration and secure profitability by increasing sales of differentiated products, such as DDR4/LPDDR4. In addition, NAND products are expected to become more competitive, due to 10-nanometer class migration, increased sales of high capacity UFS for mobile devices and an increase in 3D NAND-based SSDs for PCs and servers. ■