Samsung Electronics reported today KRW 52.97 trillion in consolidated revenue and KRW 8.15 trillion in operating profit for the second quarter ended June 30, 2020.
Even as the spread of COVID-19 caused closures and slowdowns at stores and production sites around the world, the Company responded to challenges through its extensive global supply chain, while minimizing the impact of the pandemic by strengthening online sales channels and optimizing costs.
Quarterly operating profit rose 26 percent from the previous quarter and 23 percent from a year earlier, thanks to firm demand for memory chips and appliances, as well as a one-off gain at its Display Panel Business.
A partial recovery in global demand since May also helped offset some COVID-19 effects, resulting in higher earnings than initially expected. Revenue in the quarter fell 4 percent from the previous quarter and 6 percent from a year earlier due to reduced sales of smartphones and other devices.
Earnings from the Memory Business improved, led by solid demand from datacenters and PCs. However, slower demand for mobile memory resulted in weaker NAND bit growth compared to the market. System LSI reported lower earnings amid weakness in the mobile market while the Foundry Business saw a recovery in customer demand.
In the Display Panel Business, a one-off gain boosted profits from mobile displays while the Company saw losses from larger panels narrow slightly on increased sales of monitors.
The Mobile Communications Business reported solid profitability on marketing cost reductions and other cost optimizations, despite weaker sales of smartphones.
The Consumer Electronics Division posted higher earnings over growing sales of appliances such as air conditioners and dryers, as well as premium TVs including QLED models. HARMAN reported an operating loss amid deteriorating market conditions in the global auto industry.
Looking ahead to the second half of 2020, Samsung Electronics expect a gradual recovery in demand for mobile devices and consumer electronics. While risks remain due to persisting uncertainties from COVID-19 and growing competitions, the Company will respond to reviving demand through flexible global supply chain management (SCM) to ensure stable supply to customers.
For the Memory Business, the Company expects demand for mobile and graphic memory to recover driven by new smartphones and game consoles. It will focus on flexible and timely management of product mix and investment to meet changing demand for each application.
For system semiconductors, the Company will focus on expanding sales of key products such as high-resolution sensors and 5G system-on-chips (SoCs).
For the Display Panel Business, a full-fledged rebound in earnings from mobile displays is expected in the fourth quarter, as a recovery in mobile phone demand during the third quarter will likely be limited to mid- and low-end models. For large-sized panels, the Company will accelerate development of quantum-dot (QD) displays as planned.
The Mobile Communications Business plans to unveil new flagship smartphones including the Galaxy Note and a foldable phone, while seeking to expand sales of mid-tier models. The smartphone market is expected to witness intensifying competition amid a gradual recovery in demand in the second half of the year.
Samsung also aims to enhance profitability from the Consumer Electronics Division through sales of premium products, including QLED TVs and the Bespoke home appliance series, and more efficient marketing. HARMAN is expected to benefit from the improving business outlook for automobiles and higher consumer audio sales.
In the second quarter, Samsung Electronics’ capital expenditure reached KRW 9.8 trillion, including KRW 8.6 trillion spent on semiconductors and KRW 0.8 trillion on displays. Total capital expenditure in the first half was KRW 17.1 trillion, including KRW 14.7 trillion for semiconductors and KRW 1.6 trillion for displays.
Investment in the Memory Business was spent mainly on equipment for finer process technology and capacity expansion in light of expected growth in memory demand. For the Foundry Business, the Company invested mostly in the advanced 5- and 8nm processes to increase its production capacity.
Memory Business Drives Semiconductor Earnings, to Strengthen Cost Competitiveness in H2
The Semiconductor businesses posted KRW 18.23 trillion in consolidated revenue and KRW 5.43 trillion in operating profit in the second quarter.
The Memory Business saw robust demand for cloud applications related to remote working and online education as the impact from COVID-19 continued, while demand for mobile was relatively weak.
For DRAM, datacenter demand increased as a boost in online activities and video conferencing drove demand for server products. Mobile demand was weak due to seasonality and lockdowns related to COVID-19 in parts of the world including the United States and India. For PC, demand remained solid on the back of low-end laptops, while the impact from manufacturing site closures eased in the second quarter.
For NAND, server SSD demand continued to grow as new services were introduced by datacenters in the U.S. and as demand for social networking and remote services expanded in China. For mobile, demand remained weak as consumer sentiment was impacted by COVID-19 and as the share of mid- to low-end mobile products rose. For client SSD, demand was robust due to increased production of mid- to low-priced laptops. Overall NAND shipments decreased because of weak mobile demand and a temporary lack of product availability to meet all the demand for some applications.
Looking to the second half, overall demand for DRAM is expected to pick up from new smartphone launches, while uncertainties remain around geopolitical issues including trade disputes and the pace of higher content-per-box adoption. Likelihood of solid server demand continues in the second half, but server customers’ inventory and investment plans remain to be closely scrutinized. For PC, desktop demand is expected to be weak but low-end laptop demand is likely to remain solid. For graphic, demand will continue to see strong growth with the launch of new game consoles.
As for NAND, mobile demand is expected to recover on the back of growing mid- to low-end products despite continuing uncertainties. For server SSD, demand is likely to remain strong as online services and activities increase. Demand for client SSD is expected to decline on weak PC demand, but there is a possibility of a recovery as content-per-box grows toward the end of the year.
The Company will focus on flexible product mix and investment, while strengthening the technological leadership in DRAM with the full-fledged application of 1Z-nm and EUV-based products. For NAND, the Company will focus on cost competitiveness and accelerate conversion to 6th-generation V-NAND.
Meanwhile, earnings for the System LSI Business decreased due to a decline in demand for mobile components including SoCs. However, the Company continued to diversify the business with the launch of big-pixel image sensors with ultra high-speed autofocus features and the ‘CC EAL6+’ certified security chip solution, which provides strong privacy protection in smart devices. The Company also diversified its global customer base and increased the portion of overseas revenue.
As for the second half, the number of 5G subscribers and launches of mid- to low-priced 5G smartphones are expected to increase while adoption of high-resolution and triple/quad camera for mobile devices is expected to grow. The Company will seek to expand market opportunities through new products based on its technology leadership.
The Foundry Business achieved record quarterly and half-yearly revenue as customers’ inventory build-ups increased. The Company began mass production of 5nm products and is developing 4nm process technology. The Company also strengthened the foundation for expansion by starting investments in production lines in the Pyeongtaek complex.
In the second half, while the impact from COVID-19 will persist, the Company plans to mass produce mobile and high-performance computing (HPC) products based on advanced process technology. In addition, the Company plans secure stable sales and improve profitability by diversifying applications beyond mobile products and into HPC and consumer products.
Display Earnings Improve on One-off Gain; Demand Expected to Recover in H2
The Display Panel Business posted KRW 6.72 trillion in consolidated revenue and KRW 0.30 trillion in operating profit for the second quarter. Its earnings improved QoQ thanks to a one-time gain despite weaker demand for overall display panels.
Mobile displays saw unfavorable business conditions persist as the global spread of COVID-19 weighed down smartphone sales globally. For large displays, the operating loss narrowed slightly on increased sales of monitors as more people worked from home.
Looking ahead to the second half, Samsung expects demand to recover for mobile displays as major customers are planning to launch new products while risks remain due to continuing uncertainties from COVID-19.
The Company aims to increase sales and profitability by actively meeting demand from its customers and offering mobile panels with differentiated performance and design. It will also focus on expanding the presence in new applications including displays for foldable phones and other IT devices.
For large displays, Samsung will continue to meet demand from its LCD customers until the end of the year and accelerate product development based on new technologies such as QD Displays.
Mobile Profitability Remains Solid in Q2; Shipments Increase amid Market Competition in Q3
The IT & Mobile Communications Division posted KRW 20.75 trillion in consolidated revenue and KRW 1.95 trillion in operating profit for the second quarter.
Amid lockdowns in regions including North America and Europe and store closures due to the global impact of COVID-19, overall market demand decreased QoQ and the Company’s smartphone shipment and revenue declined from the previous quarter. However, efficient cost management, including reductions of marketing expenses and offline promotions, helped the Company report solid profits.
Looking ahead to the third quarter, smartphone sales are expected to rise QoQ, backed by a stronger product mix thanks to the launch of new flagship models, including the Galaxy Note and a new foldable phone, to be introduced at the upcoming virtual Galaxy Unpacked event on August 5th.
For the second half, the overall mobile market is expected to show a gradual recovery. However, uncertainties related to COVID-19 will continue to persist, with market competition expected to intensify as companies strive to make up for weak performance during the first half.
Amid increased market uncertainty, the Company will respond timely to recovering demand in various regions by launching new flagship models as well as strengthening its mass-market lineup. It will also continue efforts to enhance profitability through optimizing product portfolio, building on the improvement in profitability in mass market models since last year.
As for the Networks Business, investments in 5G services were delayed in both domestic and overseas markets due to the global spread of COVID-19. While there are still uncertainties over network operators’ investment schedules, Samsung will continue to explore new opportunities for business expansion.
Appliances, TV Notch Earnings Growth on Premium Products, Supply Chain Management
The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 10.17 trillion in consolidated revenue and KRW 0.73 trillion in operating profit in the second quarter.
Profit for the Visual Display Business rose despite softness in sales as the Company sought new sales opportunities online to overcome difficulties sparked by global lockdowns. The Company also boosted profits by using its diverse locations for sales and production and targeting consumers’ needs for smart TVs. As a result, sales in premium products like QLED and ultra-large models grew both QoQ and YoY in the second quarter. Cost reduction as well as operational efficiency also boosted profits in the second quarter.
The Digital Appliances Business saw earnings in the second quarter improve both on-quarter and over a year earlier as consumer spending in some economies picked up thanks to an easing of lockdowns in some regions. During this bump in demand in the second quarter, the Company expanded sales of premium products including its Grande AI washers and dryers as well as its Bespoke refrigerators. Seasonal demand for air conditioners on top of cost-effective marketing strategies also helped earnings.
For the second half of the year, both TVs and digital appliances are expected to see better performance in sales versus the first half of 2020 once pent-up demand is released after COVID-19 lockdowns ease and year-end holiday spending. Slowdowns in the global economy, rising unemployment and fluctuations in foreign exchange rates will be risks to earnings for the rest of the year, in addition to the ongoing pandemic. The Company will aim to increase profitability going forward through premium product sales and more efficient marketing.
Enhancing Shareholder Communication on ESG
Samsung remains committed to creating environmental and social value to support sustainable growth, and to communicating transparently with shareholders on ESG issues.
In Samsung’s 2020 Sustainability Report, the Company enhanced its disclosure of climate actions based on the Taskforce on Climate-related Financial Disclosure framework. In the report, published in June, Samsung also introduced Sustainability Accounting Standards Board standards for the first time to share its actions and developments in sustainable management.