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Musing-Weekly Newsletter

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Samsung Display & Mobile Business Y/Y Revenue Down 26.5% & 17%, Respectively 
August 06, 2018
 
Samsung reported Q218 operating profit up 5.7 percent to 14.9 trillion won ($13.3 billion) in the second quarter, slightly ahead of its 14.8 trillion won estimate.  Revenue for the April-June period fell 4 percent Y/Y to 58.5 trillion won. While the mobile business struggles, the chip business remained Samsung’s top earner in the second quarter as sales to the cloud computing and crypto-currency industries propped up DRAM chip prices even as NAND flash memory prices slipped. 
The chip unit posted a record 11.6 trillion won operating profit in the second quarter, up 45 percent from a year ago and nearly 80 percent of its total operating income. Looking at the individual segments that affect the OLED industry, VD, DP and IM, they were all down Y/Y in revenue and operating margin as shown in the next table.

Table 1: Selected Q218 Samsung Financials  
Picture
Source: Company
​

* Samsung did not breakout VD’s operating margin.
 
SEC --         Samsung Electronics
VD --  Visual Display (TVs)
DP -- Display Panel (OLEDs and LCDs)
IM --  IT & Mobile (Smartphones)

  1. General
    1. Weak flexible OLED & LCD volume
    2. Weak S9/+ sales – Consumers moved to mid to low end phones
    3. S9 – High price and less differentiation Financing and trade-in programs need expansion to generate incremental sales
    4. TV sales – better on premium products but still trailing OLED TVs
    5. Looking 8K to drive performance 
  2. Display
    1. OLED
      1. Weak flexible OLED Demand due to Apple stopping purchases of iPhone X displays
      2. Rigid OLED demand better but greater price competition from LTPS LCDs
    2. LCD
      1. Some improvement due to seasonal demand but lower prices
      2. Expect pickup in 2ndHalf
  3. Mobile
    1.  2Q demand was slightly up sequentially for smartphones & tablets 
    2. ASP declined due to lower than expected S9 sales
    3. Discontinued a number of older low-priced models
    4. Spent extra $’s for marketing, hoping for a 2ndhalf increase
      1. Release date earlier for Note 9
      2. More ‘value’ in product, but does this mean a lower price
      3. Expect better volume than previous models 
  4. VD
    1. Down Q/Q but up Y/Y 
    2. Most growth came from QLED and 8K (question volume of 8K sales)
 
  1. 3Q/2H Outlook -- Better generally due to seasonality (excluding semis)
  2. Technology         
    1. Micro-LED – Commercial product in October No likely to be a if revenue generator
  3. Residential Micro-LED TV – Potentially available in summer 2019 at ‘reasonable’ price 
  4. QD-OLED – One of a number of technologies being research for high-end TV differentiation
Here are some excerpts from the conference call
 
Ben Hur from System LSI business (Great Name)
 
“In the second half of this year, our earnings are likely to return to growth quarter-over-quarter as smartphone makers enter strong seasonality. With respect to the growth will be backed by strong demand for OLED DDIsand high pixel image sensors, the former for use in flagship smartphones and the latter amid increasing adoption of dual camera and triple cameras.  With a view to the mid to long term, we will focus on developing cutting-edge chipset for use in 5G, multiple cameras and display panels. By doing so, we will try to lead the market and establish a stable business structure by achieving high growth compared to the market. Regarding the triple camera, the triple camera offers various advantages, such as optical zoom or ultra-wide angle, also extreme low-light imaging. And that's why we're expecting more and more handsets to adopt triple cameras not only in 2018 but next year as well.By next year, about 10% of handsets are expected to have triple cameras. And triple camera adoption will continue to grow even after that point.”
 
Kwonyoung Choi, Samsung Display. 
“In the second quarter, total earnings in the display business decreased quarter-over-quarter due to weakened profitability in both the OLED and SSD business.
  • For the OLED business, earnings decreased quarter-over-quarter despite increased utilization for [indiscernible] product and demand from major customers for flexible displays continue to slow.  
  • In the HD business, earnings declined quarter-over-quarter due to a decline in shipments alongside continued slide in panel ASP. 
  • In the second half of 2018, we expect sales in the OLED business to increase half-over-half, an increase in shipments led by rebounding demand for flexible displays.  
  • New growth engines by embedding more value-added features into our panels, such as fingerprinting technology, and reinforcing our competencies in new applications such as OLED displays.”
 KyeongTae Lee Mobile Buisness
  • The mobile business booked a 34 percent fall in operating profit to 2.7 trillion won ($2.4 billion) in the second quarter, its biggest decline since the Galaxy S7 was Samsung’s flagship model early last year.
  • For the second quarter market demand for both smartphone and tablets increased slightly compared to the previous quarter amid weak seasonality. 
  • For the smartphones, the overall market ASP declined as the demand focused on low end and midrange product.
  • Our shipment and revenue decreased Q/Q due to weaker-than-expected sales of flagship models, including the Galaxy S9, and then the effect of having discontinued production of older low-end model. Sales of Galaxy S9 and S9 plus fell short of our target amid a slow premium smartphone market and rising competition among flagship models. 
  • Market demand for smartphone and tablet is expected to grow half-on-half, as we enter a period of strong seasonality. However, we expect that the environment to remain challenging as our launch of new products featuring higher spec and intensified pricing - price competition in order to increase the demand. We will also strengthen price competitiveness and actively tap - advanced the technology in our mass model to aggressively respond to the market condition. Offering more sophisticated specs throughout our line-up will make it difficult to maintain profitability.
  • Regarding the S9 and the reasons for its weak sales, first of all, overall, in the premium smartphone segment, the demand remains weak. We also see that as smartphones become a higher spec and product differentiation is becoming less clear, the global handset replacement cycles are getting longer. Also, the higher price points of premium products appear to be driving market resistance.
  • Note 9, we have focused on, first of all, providing the best ever level of performance for these core features and functions. Also, we've built in more functions around the distinguishing S Pen. Also, we are offering new experiences by combining hardware, software and services.
  • In terms of developing the foldable smartphones,the foldable smartphones need not only innovation in terms of the display but other parts as well, including battery as well as cases. At the same time, there needs to be UI as well as user scenarios developed to optimize - to match the new form factor. And that's why we have been engaged in research and development of the foldable smartphones for several years. The introduction of this new form factor is expected to bring new energy to the rather stagnated mobile market. To give you an update on where we stand, we're in the process of stabilizing the performance as well as durability by working together with a parts company. Also, we are, at the same time, focused on servicing software and services optimized for this new form factor in order to raise the level of completeness.”
 
Separately, ET News reported that Samsung Display is expected to begin foldable OLED production towards the end of 2018, as Samsung Electronics plans to begin selling foldable phones in the beginning of 2019. Samsung will soon be ready to start producing foldable OLEDs in a new pilot line in its A3 flexible OLED line. In 2018 the company will only be able to produce 100,000 units, and in 2019 the capacity will be about 1 million. It seems that Samsung is in a hurry to have a product out, and is currently ready to start production with low yields and high production costs (according to GBI estimates, the first foldable phone/tablet will cost over $1,800).

ETNews further says that the first phone design will have a large 7" display that will fold inwards and vertically (like a clamshell phone). The display will not fold fully, however - when folded a third of the display will still be visible and will thus operate as an external display.
​
Kyung Chull Park,Visual Display-- “The TV market in Q2 has decreased from last quarter due to continued global economic slowdown, but the market has grown Y/Y due to sports events of this year. The TV market in the second half is projected to grow Y/Y mainly in the advanced market. 

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