Samsung Group posts record operating profit of 5.85 trillion won

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SEOUL: Samsung Electronics Co Ltd (Samsung) yesterday announced revenues of 45.27 trillion Korean won on a consolidated basis for the first quarter ended March 31, 2012, a 22-per cent increase year-on-year (y-o-y).

For the quarter, the company’s consolidated operating profit reached an all-time high of 5.85 trillion won representing a 98-per cent increase y-o-y. Consolidated net profit for the January-March period was 5.05 trillion won.

Despite a decrease in sales of semiconductor chips and TVs due to seasonal factors, an increase in profitability in display panels and mobile phones pushed up quarterly operating profit margins by 1.7 percentage points to 12.9 per cent.

In its earnings guidance disclosed on April 6, Samsung estimated first-quarter consolidated revenues would reach approximately 45 trillion won with consolidated operating profit of approximately 5.8 trillion won.

Samsung’s strong performance in the quarter was driven mainly by the IT & Mobile Communications (IM) segment, which was comprised of four businesses, Mobile Communications, Telecommunication Systems, IT Solutions and Digital Imaging. In particular, solid growth in the Mobile Communications business, with brisk sales of flagship GALAXY Note and GALAXY S II devices contributed to the company’s profitability.

The consolidated operating profit for IT & Mobile Communications businesses reached 4.27 trillion won on revenue of 23.22 trillion won. The display panel business rebounded in the first quarter with operating gains of 280 billion won, following an uptick in demand for high-margin panels used in tablets, 3D/ LED TVs and premium OLED panels.

“Despite difficult business environments including seasonal low demand for major products such as PCs and TVs amid a global economic slowdown, it achieved record quarterly results based on its differentiated products and technology leadership.

“We cautiously expect its earnings momentum to continue going forward, as competitiveness in its major businesses is enhanced,” said Robert Yi, senior vice president and head of Investor Relations.

Looking into the second quarter, Samsung expected to improve profitability in the chip business with a recovery in PC DRAM price and by expanding its new product category with mobile application processors based on 32 nanometer-class process technology.

Samsung planed to also bolster its competitive edge in mobile phones with the debut of new high-end smartphones, and by reinforcing the full lineup of products and its presence in emerging markets.

Capital expenditure in the first quarter was 7.8 trillion won, with 5.8 trillion won invested in the Semiconductor Business and 1.3 trillion won in the Display Panel segment.

Earlier this year, Samsung announced plans to spend a total of 25 trillion won in capital expenditure for 2012.

Fifteen trillion won would be invested in the Semiconductor Business that consists of Memory and System LSI. For the Display Panel segment, 6.6 trillion won had been allocated for investment.

Samsung’s Semiconductor Business – including Memory and System LSI – posted an operating profit of 760 billion won in the first quarter. Revenue retreated to 7.98 trillion won on-year, a 13-per cent decrease compared with the same period last year.

Weaker-than-expected off-peak season demand and a global supply crunch of hard disk drives coupled with low demand for PC DRAM chips and the oversupply of mobile DRAM impacted profit margins, in which the memory portion saw its revenue slip to 4.89 trillion won.

Despite adverse market conditions, Samsung’s chip business was buoyed by strong demand for server DRAM and by expanding its value-added product mix such as products based on the 30-nanometer-class and 20-nanometer-class process technologies.

Increased orders for Solid State Drives (SSDs) and Embedded Multimedia Cards (eMMC) also helped the chip business to cushion the market squeeze.

Looking ahead, the global HDD supply shortage was expected to be alleviated in the second quarter and demand for specialty DRAM products including mobile and server DRAMs would be strong.

However, elevated competition among manufacturers of 30-nanometer-class chips would lead to a price decline.

In the second quarter, Samsung was poised to ramp up supply of high-capacity, power-efficient DRAM for servers based on its green memory solution.

As for NAND, it would spur growth by expanding the 20-nanometer-class portion. Sales of CMOS image sensors would remain high in the April-June quarter, as demand for smartphones equipped with high-resolution cameras was expected to be strong.

Operating profit for the Display Panel Business turned around from the previous quarter to register 280 billion won on revenue of 8.54 trillion won in the first quarter.

Despite traditionally weak seasonality, continued economic stagnation in Europe, and the prolonged supply shortage in the PC industry, the Display Panel Business was able to improve profitability by expanding sales of high-end premium panels such as LED TV and 3D panels, which pushed TV panel sales up in the mid-20 per cent range on-year.

Increased sales of high-resolution panels for tablet PCs and OLED panels for smartphones also helped boost profit in the quarter.

Looking ahead, although the market for monitor panels would remain stagnant, demand for tablet and notebook panels was expected to increase on seasonal education-related demand while TV panels were expected to lift due to Chinese Labor Day sales and the London Olympics.

Moving forward with the establishment of Samsung Display Corporation, the company would continue to enhance profitability by expanding sales of premium panel products such 3D, large size and LED panels, while smartphone demand was expected to continue to fuel OLED panel sales.

The IT & Mobile Communications division – including Mobile Communications, Telecommunication Systems, IT Solutions and Digital Imaging – registered quarterly operating profits of 4.27 trillion won for the first period.

Revenue reached 23.22 trillion won, and the mobile unit accounted for 18.90 trillion won, up 86 per cent y-o-y.

Samsung is expected to continue its strong growth momentum in the second quarter, following the announcement of the next GALAXY device in London on May 3.

The Telecommunication Systems business saw growth both in revenue and operating gains due to an increase in LTE (Long Term Evolution) wireless broadband technology equipment.

In the case of IT Solutions, a boost in sales of mid-to-high-end products, including PCs and printers improved quarter-on-quarter earnings.

It expected to further solidify its leading position in LTE business in the US market and make further inroads into countries newly adopting the service.

Samsung’s Consumer Electronics businesses, which encompassed Visual Display and Digital Appliances, registered an operating profit of 530 billion won in the quarter, up 550 per cent y-o-y, on revenues of 10.67 trillion won.

Although weak seasonality led to a quarter-on-quarter dip in revenue, strong sales of premium TVs in developed markets and LED TVs in emerging markets saw shipments outstrip market growth and drive a sharp increase in profitability.

Highlights for the quarter included an increase in sales of more than 50 per cent for Samsung’s flagship 7000/8000 TV series on-year, while the Digital Appliances Business improved profitability, both on-year and on-quarter, by increasing its portion of premium product sales.

In the second quarter, market growth for flat panel TVs in the mid-single digits was expected on rising demand in emerging markets and increased sales of LED TVs which were forecasted to account for over 60 per cent of the TV market in the quarter.

In emerging markets, Samsung aimed to expand its presence with region-specific LED TV models, while its range of Smart TV models with enhanced features would continue to maintain the company’s leadership in developed markets.

As for digital appliances, demand was expected to rise led by growth in emerging markets.

Samsung would aim to improve profitability in the quarter by enhancing R&D efficiencies, expanding sales of premium products and sales in emerging markets, and capitalizing on strong seasonal demand for air conditioners.