Samsung’s smartphone shipments rose in second quarter of 2019, but sales of flagship models fell

Samsung Electronics reported financial results for the second quarter ended June 30, 2019. The South Korea-based company posted KRW 56.13 trillion in consolidated quarterly revenue and KRW 6.6 trillion (US $5.61 billion) in quarterly operating profit.

The weakness and price declines in the memory chip market persisted as effects of inventory adjustments by major datacenter customers in the previous quarters continued, despite a limited recovery in demand.

(TOP: The Samsung Galaxy Fold. The company has recorded a drop in sales of flagship models in the second quarter of the year). 

The Display Panel Business reported improvement due to a one-off gain in mobile displays and stronger sales of rigid OLED panels, which offset losses from large displays.

The Display Panel Business reported KRW 7.62 trillion (US $6.47 billion) in consolidated revenue and KRW 0.75 trillion (US $6.375 billion) in operating profit for the quarter, returning to a profit from the previous three-month period thanks to a one-time gain and a gradual recovery in customer demand.

Mobile display earnings increased, led by higher shipments of OLED panels featuring new technologies such as fingerprint-on-display and hole display. Large display sales also saw a slight improvement from the previous quarter on demand for premium panels and reduced costs.

The Mobile Business posted stronger shipments on new mass market models but was overall weighed down by slower sales of flagship models and increased marketing expenses.

The IT & Mobile Communications Division posted KRW 25.86 trillion (US $21.98 billion) in consolidated revenue and KRW 1.56 trillion (US $13.26 billion) in operating profit for the quarter.

While the overall market saw demand for smartphones decline due to the negative macroeconomic environment and seasonal weakness, Samsung’s smartphone shipments increased QoQ led by strong sales of the new Galaxy A Series, including the Galaxy A50 and A70. However, sales of flagship models fell QoQ on weak sales momentum for the Galaxy S10 and stagnant demand for premium products.

Increased costs associated with growing competition in the mid- to low- end segment and inventory adjustments of older models resulted in a drop in profit for the Mobile Business. On the other hand, earnings for the Networks Business improved thanks to the expansion of commercial 5G service in South Korea and LTE networks in overseas markets.

Consolidated sales and operating profit by segment based on K-IFRS (2017~2019 2Q)

In the second half, the overall mobile market demand is expected to remain weak due to growing uncertainties over the global economy and trade. Samsung will continue to strengthen its flagship lineup and increase sales of new mass market models. The Company will promptly respond to the changing business environment, and step up efforts to secure profitability by enhancing efficiency across development, manufacturing and marketing operations.

In the third quarter, Samsung will focus on successful launches of new innovative products – the Galaxy Note 10 and Galaxy Fold. It will enhance the 5G smartphone lineup to take the lead in the new market and introduce more competitive A series models in the second half to extend the ongoing positive momentum in mass market smartphone sales.

The Network Business posted solid results on the commercialization of 5G service in South Korea.

The Consumer Electronics Division was boosted by strong sales of new appliance products and improved profitability of refrigerators and washing machines, although profits from TVs fell slightly YoY due to intensifying competition.

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 11.07 trillion (US $94.1 billion) in consolidated revenue and KRW 0.71 trillion in operating profit for the second quarter of 2019.

Earnings for the Visual Display business dropped both QoQ and YoY due to intensifying price competition in the market. However, Samsung’s product-mix improved in the second quarter via early launches of new models and the expansion of premium product sales such as QLED and super-large screen TVs.

For displays, new smartphone product launches are set to help mobile display earnings but overall sluggish demand in the broad smartphone market may limit upside potential. Also, competition in the smartphone market is seen increasing in the second half, Samsung plans to enhance its product lineup and expand sales of new mass market models. The Network Business will prioritize building the foundation for its global 5G business expansion.

The Consumer Electronics Division expects a seasonal boost in TV sales and will focus on premium models, while offering new appliances such as Bespoke refrigerators and AirDressers.

In the second quarter, Samsung Electronics’ capital expenditure stood at KRW 6.2 trillion (US $5.27 billion), including KRW 5.2 trillion (US $4.42 billion) spent on semiconductors and KRW 0.5 trillion (US $0.425 million) on displays. Total capital expenditure in the first half was KRW 10.7 trillion (US $9.095 billion), including KRW 8.8 trillion (US $7.48 billion) for semiconductors and KRW 0.8 trillion (US $0.68 billion) for displays.

The main portion of the company’s 2019 capex is earmarked for building infrastructure to address demand beyond 2019, and a larger percentage of this year’s investment will be made in the second half.

Through the rest of the year, Samsung will focus on marketing new lifestyle products for consumers, such as Bespoke refrigerators and AirDressers. The Company will also continue to strengthen the B2B business which includes built-in appliances and system air conditioners.


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