Mixed Results for Samsung’s First Quarter, Lower Display Panel Revenue
For System LSI, high-end mobile AP demand will remain weak through the second quarter, but earnings are expected to improve during the second half of the year as Samsung plans to seek growth momentum with solid sales of high-density CIS as well as the launch of new 20-nanometer AP products.
As the company completed qualification of 14-nanometer process during the first quarter, it expects to ramp up production of the 14-nanometer process which is expected to begin by the end of 2014, with earnings contribution is expected from the first half of 2015.
Higher Panel Shipments Expected for Second Quarter
The Display Panel segment posted revenues of 6.10 trillion won in the first quarter, with an operating loss of 80 billion won amid traditionally weak seasonal demand.
During the first quarter of 2014, the overall LCD market experienced an on-quarter decline in demand for TV and tablet panels as product makers reduced orders. For Samsung, earnings were impacted by cost increases related to the ramp-up of production in China coupled with the decline in ASP.
Looking ahead, Samsung expects the LCD panel market to improve due to increased demand for TVs related to the World Cup, and declines in ASP are expected to abate. Samsung expects increased shipments of both mass-market panels as well as premium products, such as curved panels, to drive growth while expansion of the UHD TV market should lead to improved profitability.
For OLED panels, weak seasonal demand led to a decline in sales for the first quarter. Concerning the outlook for the second quarter, Samsung expects to increase shipments of larger and higher resolution panels for tablets and mass-market smartphone lineups. The company will also focus on leading innovation in the production of flexible panels and expanding the applications of OLED to the emerging wearable devices category.
Mobile Business Leads Solid Earnings Momentum
The IT & Mobile Communications (IM) division – consisting of Mobile Communications and Networks – posted operating profits of 6.43 trillion won on 32.44 trillion won in revenue for the first quarter. Out of the total IM earnings, the mobile business was responsible for 31.36 trillion won.
Although market demand for both smartphones and tablets decreased during the first quarter, operating profits for the IM division jumped 18 percent compared with the previous quarter, due to steady smartphone shipments, efficient execution on marketing expenditures, and a positive impact from adjustments of one-off expenses.
As for smartphones, Samsung continued to see solid sales of GALAXY S4 and GALAXY Note 3, while also strengthening its premium product portfolio through the introduction of a new flagship smartphone, the GALAXY S5.
Looking at the tablet business, the company maintained solid tablet sales momentum by shipping nearly 13 million units during the slowest quarter, and reinforced its mid to high-end lineup, including launches of the premium GALAXY Note PRO and GALAXY Tab PRO devices equipped with 12.2-inch displays, office functionality, and PC-level performance.
For the next quarter, smartphone and tablet demand Samsung expects demand to slightly increase under continued weak seasonality, but says it will maintain solid earnings momentum through full-fledged global sales of the GALAXY S5 smartphone. Based on its differentiated features, and initial response from the market, Samsung expects GALAXY S5 sales to surpass sales of GALAXY S4.
In 2014, Samsung says it will respond to rapid demand growth in China’s LTE market by leveraging its LTE technology leadership, while further strengthening its product line-up across various price points. And, as the wearable device market is expected to grow, the company will reinforce its market leadership to gradually increase the wearable device business’ contribution to entire earnings.
Premium TV Sales Outperform Market Growth
The Consumer Electronics Division – encompassing the Visual Display, Digital Appliances, Printing Solutions and Health and Medical Equipment businesses – posted an operating profit of 190 billion won for the quarter on revenues of 11.32 trillion won. The Visual Display business accounted for 7.39 trillion won of earnings.
Seasonally low demand for consumer electronics goods during the first quarter corresponded with the division’s overall sales retreating by 21 percent on-quarter. Despite challenging conditions in the TV market, Samsung says it outperformed the market due to increased sales of premium products, including UHD TVs, in developed markets, including China. Latin America was also a bright spot, buoyed by increased demand for TVs due to the World Cup, helping Samsung post on-year growth for the region in the mid 70-percentage range.
While competition is likely to intensify and slight on-quarter demand growth is forecast, Samsung expects demand for UHD TVs to drive meaningful growth in the global TV market. Against this backdrop, the company will focus on increasing sales of value-added premium products, including UHD and curved TVs, and responding to the rising demand driven by the World Cup and emerging markets.
For the Digital Appliances Business, earnings declined on-quarter under weak seasonality and increased expenses associated with new product launches. Looking ahead, Samsung expects modest growth in the appliance market due to increased demand in developed markets and strong seasonal sales for air conditioners. Samsung will also focus on improving supply-chain management capabilities in strategic regions and continue its efforts to build brand power through its product lineup.