Samsung profit falls 18% in Q2; company to stop reporting smartphone, tablet shipments

Samsung on Friday reported earnings for the second quarter of 2011 that showed a significant decline in profit despite modest revenue gains. Samsung’s revenue ticked up 4% year-over year to 39.44 trillion Korean won but its consolidated net income of 3.51 trillion won was a sharp 18% decline from the same quarter in 2010. The company’s semiconductor business recorded revenues of 1.79 trillion won in the second quarter, which was up sequentially from the 1.64 billion won but down from 2.94 billion won in the second quarter last year. Samsung’s LCD panel division was hit the hardest, registering an operating loss of 210 billion won on revenue of 7.09 trillion won, which was down 9% year-over-year. Samsung’s telecommunications business grossed 12.18 trillion won in the June quarter, and profit came in at 1.67 trillion won. “Despite the challenging business environment and global economic uncertainties, we achieved continued year-on-year revenue growth in the second quarter driven by mobile device sales, particularly the success of our smartphones,” said Robert Yi, Vice President and Head of Samsung Electronics’ Investor Relations Team, in a state. “Heading into the third quarter – which typically sees increased consumer demand for electronics – we expect competition to remain tight, and will continue to enhance our cost competitiveness and technology leadership in the components businesses.” Samsung stated that it will no longer report smartphone or tablet shipment figures in its earnings reports. Market analysis firm Strategy Analytics puts the company’s smartphone shipments at an impressive 19.2 million units last quarter, which would secure it a No. 2 spot globally behind Apple. The company’s full press release follows below.

Samsung Electronics Announces Second Quarter 2011 Results

- Consolidated operating profit reaches 3.75 trillion won on revenues of 39.44 trillion won

SEOUL, Korea – July 29, 2011 – Samsung Electronics Co., Ltd. today announced revenues of 39.44 trillion Korean won on a consolidated basis for the second quarter ended June 30, 2011, a 4-percent increase year-on-year. For the quarter, the company posted consolidated net income of 3.51 trillion won, representing an 18-percent decrease year-on-year. Consolidated operating profit for the quarter was 3.75 trillion won.

In its earnings guidance disclosed on July 7, Samsung estimated second-quarter consolidated revenues would reach approximately 39 trillion won with an operating profit of 3.7 trillion won.

By business segment, Telecommunications drove revenue growth in the second quarter, with sales rising 43 percent year-on-year due to strong demand for Samsung’s GALAXY SII smartphone and other mobile devices. Digital Media & Appliances saw sales increase from the previous quarter supported by improved demand for flat panel TVs.

Operating profit declined year-on-year from the record-setting second quarter of 2010, as weakened demand reduced margins in the Semiconductor and Display Panel businesses. The bottom line was supported by an operating profit of 1.67 trillion won from the Telecommunications businesses.

“Despite the challenging business environment and global economic uncertainties, we achieved continued year-on-year revenue growth in the second quarter driven by mobile device sales, particularly the success of our smartphones,” said Robert Yi, Vice President and Head of Samsung Electronics’ Investor Relations Team. “Heading into the third quarter – which typically sees increased consumer demand for electronics – we expect competition to remain tight, and will continue to enhance our cost competitiveness and technology leadership in the components businesses.”

Capital expenditure for the second quarter was 5.6 trillion won, bringing the total investment for the first six months of 2011 to 11.2 trillion won. Samsung said the annual projected capex of 23 trillion won remained unchanged, however a shift in allocation to increase semiconductor and reduce LCD investment was possible.

Weak Memory Demand Sees Profit Decline

Samsung’s Semiconductor businesses recorded a consolidated operating profit of 1.79 trillion won in the second quarter, improving from the 1.64 billion achieved in the first quarter but declining from the 2.94 billion won registered the previous year. Revenue reached 9.16 trillion won, a 4-percent decrease year-on-year. The operating profit margin was 19.6 percent.

The Memory Business posted 5.89 trillion won in revenue for the quarter, a 12-percent dip from the same period a year earlier. Demand for commodity DRAM remained weak as global PC shipments saw low-single digit growth, however higher growth was seen in server-related memory sales for data centers and for high-density mobile memory products for smartphones and tablet manufacturers. In response to continued oversupply in the market, Samsung strengthened its cost competitiveness through further migration to 30-nm-class DRAM production and reinforced its focus on high-value added products. For NAND, demand was also driven by orders for mobile device applications while spot prices decreased on weak seasonality.

Sales for the System LSI Business increased as demand for mobile application processors and high-quality image sensors rose. Samsung also announced its foundry business is now ready to start 28nm process manufacturing as it continues to strengthen investment in research and development.

In the third quarter, increased seasonal PC shipments are expected bolster demand in the key DRAM segment, although concerns remain over high inventory levels among PC manufacturers. NAND supply is forecast to be tight due to strong seasonal demand driven by smartphone and tablet sales.

LCD Panel Prices Fall

The Display Panel Business recorded an operating loss of 210 billion won on revenue of 7.09 trillion won, down 9-percent in sales compared with the same period last year.

Overall market shipments of LCD panels increased 8 percent quarter-on-quarter in expectation of the upcoming peak season and Chinese National Day, but panel inventory levels remained high due to slow set sales. Samsung’s total panel shipments increased in the mid 10-percent range compared with the first quarter.

While the average sales price for light-emitting diode (LED) panels for notebook PCs and monitors climbed moderately, prices dropped for TV panels over 40-inches in diameter.

With the peak season approaching, total industry panel shipments for the third quarter are expected to increase 6 percent quarter-on-quarter to 184 million units although global economic uncertainties will continue to weigh on consumer demand. Samsung aims to expand sales of premium panels for 3D and Smart TVs, while further enhancing the efficiency of its productions lines and supply chain.

Smartphone Sales Boost Telecom Profit

The Telecommunications businesses – including mobile communications and telecommunication systems – posted an operating profit of 1.67 trillion won on revenue of 12.18 trillion won. The businesses achieved an operating profit margin of 13.7 percent for the quarter.

Samsung’s Mobile Communications Business saw revenues rise 45 percent year-on-year to 11.69 trillion won. Shipments of mobile handsets increased in the high-single-digit range quarter-on-quarter driven by brisk sales of smartphones including the flagship GALAXY SII, which began to be rolled out globally during the quarter. The average sales price of handsets increased by more than 10 percent.

Samsung expected market demand for mobile handsets to increase by more than 15 percent in the second half, driven by consumers upgrading to smartphones. In the third quarter, Samsung will continue to drive sales of the GALAXY SII and strengthen its product lineup with new mobiles featuring Long-Term Evolution technology. The company will also proactively respond to increased demand for tablet devices with its GALAXY Tab portfolio in various sizes. The Mobile Communications Business is on track to achieve its 2011 goals of outperforming market growth and maintaining a double digit operating margin.

For the Telecommunications Systems Business, revenue and operating profit improved year-on-year supported by increased investment from mobile carriers in LTE network infrastructure.

Digital Media & Appliances Defies Market Conditions

The Digital Media & Appliances businesses – including Visual Display, IT Solutions and Digital Appliances – posted revenues of 14.07 trillion won for second quarter. The operating profit of 510 billion won represented an improvement on the 100 billion won registered the same period last year.

Samsung’s flat panel TV shipments and profitability both increased for the quarter, as sales of LED TVs continued to pick up in developed and emerging markets. LED TV sales accounted for roughly half of all Samsung LCD TVs sold for the quarter, reflecting the wide acceptance of the new technology.

Overall, flat panel TV market demand in the third quarter is projected to increase in the mid 10-percent range quarter-on-quarter supported by strong seasonality. Samsung aims to expand sales of Smart TVs by providing region-specific TV applications and content for viewers.

As for Digital Appliances, revenues grew strongly on sales of premium products such as air conditioners and refrigerators in both Korea and emerging markets, especially Latin America.

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