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Memory Chips and OLED Display Recovery Fuel Samsung’s Record Profits in Q318
November 05, 2018 Samsung Electronics Co Ltd slashed 2018 capex by more than a quarter on Wednesday and warned of lower profit until early next year, calling an end to a two-year boom in memory chips that fueled record third-quarter profit. Samsung said third-quarter revenue rose 5.5 percent to 65.5 trillion won, slightly ahead of its guidance and reported a record 17.6 trillion won operating profit in the July-September quarter, in line with the company’s estimate. Squeezed by competition with Apple in the premium segment and with Chinese rivals in other segments, Samsung’s smartphone business saw profit fall to the lowest level since the first quarter of 2017. Earnings from memory chips are set to decline but demand for OLED panels from major customers are set to remain strong.It plans to share details of its development of foldable smartphones at a conference early next month, hoping the model will help revive its premium cache.With chip prices weakening after years of stellar growth, analysts expect Samsung’s fourth-quarter profit will decline by 4 percent from the third quarter’s record, according to Refinitiv data. |
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That will be still up 11 percent from a year ago, helped by efficiency improvements and cost-cutting in the chip business, which accounts for nearly four-fifths of Samsung’s operating profit.The downbeat forecast added to investor jitters over waning global demand for mobile and other electronics devices that roiled world stock markets this month. The company said it expected quarter-on-quarter earnings decline in the fourth quarter due to weak demand for memory chips and higher smartphone marketing spend during the year-end holiday season.
Figure 1: Samsung Electronics Earnings by Quarter
Figure 1: Samsung Electronics Earnings by Quarter
Source: Samsung Electronics
“Looking further ahead to 2019, earnings are forecast to be weak for the first quarter due to seasonality, but then strengthen as business conditions, particularly in the memory market, improve,” Samsung said in a statement. The capex cut should ease concerns over further supply growth and price declines, as prices of some memory chips have already fallen to over two-year lows and rivals are set to start new production lines next year. Samsung, one of the industry’s biggest buyers of chip-manufacturing tools, said its capital spending this year would drop by 27 percent to 31.8 trillion won ($28 billion) from a record 43.4 trillion won last year. Samsung, however, sought to assuage investor concerns of a steep downturn in the chip market, citing solid demand from servers as cloud-based data services grow fast. A Samsung executive said the company believed it was at the “start of a virtuous up-cycle” in chip sales to the server industry. “Temporary price changes can repeat but fundamentally we have a very strong demand base for memory,” Chun Sewon, senior vice president of Samsung’s memory marketing, told analysts.
Display Segment - General
Focus on premium panels, but harder to differentiate
Mobile
Q&A
While questions concerning the prospects for Samsung’s semiconductor business were an obvious focus on the call, the general tone for display was moderate, with a positive bias toward OLED and negative/even for LCD, as would be expected. Samsung, along with almost all other panel producers, TV set manufacturer, and mobile device brands, are focused on the high-end/premium segments of each of these businesses, which is the issue going forward. Without a technology leap, there is little to differentiate products from one another next year, and while the headlines will be on a foldable device and 8K TVs, they will present relatively small volumes when compared to Samsung’s broad product offerings.
In the TV space, expect further expansion of QLED in 2019, with a secondary focus on the development of mini-LED by Samsung Visual in 2019. As to the QD/OLED hybrid, the company remains mute, but reports indicate the pilot line to be operating in Q419.
Display Segment - General
- OLED -- Earnings strong on flexible OLED demand from Apple and Chinese brands
- LCD -- Earnings up slightly on QLED & large panels
- Capex -- 3Q Display - .5t won 10% of total 3Q capex for flex OLED completed
- 2018 Display – 3.7t won 11.6% of total
- 3Q -- OLED Sales up flex OLED
- LCD -- Sales up slightly on premium panels -- QLED, UHD/HDR, 65”+
- 4Q
- OLED -- Stable demand. Apple remains strong thru 4Q
- Increase efficiency of rigid OLED – Will lower costs to compete with LTPS LC
- LCD – Weak
- Seasonality -- Supply/demand imbalance due to Chinese capacity
Focus on premium panels, but harder to differentiate
Mobile
- 3Q -- Smartphones Shipments flat q/q despite strong Note 9
- Dumped old models in prep for new
- Profitability down on Note 9 marketing
- Competition increases & unfavorable currency
- Marketing increases – new norm
- 4Q -- Demand up on seasonality & new models
- Banking on new A7 & A9 models but profitability down on marketing costs
- Same issue as Q3
- 2019 -- Slight smartphone growth
- Premium segment
- Will innovate across all models
- The norm is to save innovations for flagship models
- New focus add new features to all models*
- Focus on foldable, 5G -- Both will be small markets in 2019 but want to establish leadership now
- Will focus on AI & IoT No details until next year’s developer’s conference
- 3Q -- N. America sales strong q/q but flat Y/Y.
- Demand down in emerging markets
- Profit up – QLED sales tripled
- Expect to move technology to smaller sizes
- 75” >50% share (leader) –sales up 2x but with a small small base
- 4Q TV market should be up slightly Y/Y but China weak so will depend on US
- Focus on 8K, ATV
- Trade and currency issues minimal
- 2019 Expect flat TV market – no sporting events & US interest rate hike issues likely resolved 1H19 but1Q19 could be messy
Q&A
- Foldable -- Device will be ‘smartphone to tablet’ & focused on
- ‘Usability” rather than style
- Multi-tasking
- App modification takes time -- Must work in both screen modes – not easy
- Interface details at developer’s conference but Developers Conference – 11/7/18
- No timeframe for release
- 5G -- Will 5G stimulate demand for smartphones?
- Not much demand in 2019
- Will allow 4K video/live stream,
- Quality improvement will be necessary Quality improvement should drive demand
While questions concerning the prospects for Samsung’s semiconductor business were an obvious focus on the call, the general tone for display was moderate, with a positive bias toward OLED and negative/even for LCD, as would be expected. Samsung, along with almost all other panel producers, TV set manufacturer, and mobile device brands, are focused on the high-end/premium segments of each of these businesses, which is the issue going forward. Without a technology leap, there is little to differentiate products from one another next year, and while the headlines will be on a foldable device and 8K TVs, they will present relatively small volumes when compared to Samsung’s broad product offerings.
In the TV space, expect further expansion of QLED in 2019, with a secondary focus on the development of mini-LED by Samsung Visual in 2019. As to the QD/OLED hybrid, the company remains mute, but reports indicate the pilot line to be operating in Q419.