Samsung near-term outlook mixed after weak Q4

Samsung smartphone
Samsung projects its memory sales to improve in the first quarter of 2020, but warns of weaknesses in its mobile and display sectors. Premium smartphones, including 5G versions, will take off but face stiff competition. (Pixabay)

For the fourth quarter of 2019, Samsung Electronics posted KRW 59.88 trillion ($50.6 billion) in consolidated quarterly revenue and KRW 7.16 trillion ($6.0 billion) in quarterly operating profit.

Samsung said its fourth-quarter profit dropped from a year earlier due to the continued fall in memory chip prices and weakness in display panels. Improving demand for memory used in servers and mobile products, as well as solid sales of flagship smartphones, helped offset the decline in overall earnings.

For the full 2019 year, Samsung reported KRW 230.40 trillion ($194.6 billion) in revenue and KRW 27.77 trillion ($23.5 billion) in operating profit.

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Samsung’s Memory Business reported a year-on-year decline in profit as DRAM prices continued its downward trend despite rising shipments. However, earnings increased from the previous quarter, underpinned by increasing demand from data centers and other major applications as well as cost reduction. Samsung’s Logic Chip Business posted a year-over-year profit growth on demand for high-resolution image sensors and HPC (high performance computing) chips.

Samsung’s Display Panel business suffered weak demand for some premium mobile screens and saw widened losses from the large panel business.

Quarterly earnings improved significantly for the company’s Mobile Business in annual terms, thanks to solid sales of flagship Galaxy smartphones and lineup changes to improve profitability for mass-market models. Profit fell from the previous quarter, however, due to the fading effect from a new flagship product launch.

Samsung’s Consumer Electronics business also saw earnings increase year-over-year, led by growing sales of premium products including QLED TVs and new appliance offerings.

In the first quarter of 2020, the company expects weak sales from seasonality in memory chips, OLED and consumer electronics.

While Samsung believes the memory market will recover due to higher data center demand and 5G smartphone adoption, the company warned the actual pace of 5G expansion and its effects on DRAM content remain to be seen. Samsung expects inventory to return to levels seen in previous years within the first half of this year and will focus on transitioning to the next-generation chip production; 1Z-nm DRAM process and 6th-generation V-NAND.

Samsung projects NAND prices to keep rising mainly on server demand as the market stabilizes. To boost profitability and competitiveness, the company plans to accelerate the migration process to 6th generation V-NAND in the first half of 2020.

Samsung expects its System LSI Business will offer differentiated 5G System-on-Chip products and high-resolution sensors. The company’s Foundry Business plans to expand production from the 5nm and 7nm EUV (extreme ultraviolet lithography) processes while working on developing next-generation 3nm GAA (gate-all-around) technology.

The Foundry Business saw solid results in the fourth quarter from 5G chips and high-resolution image sensors. Earnings were also helped by demand for HPC chips from Chinese customers. This year, revenue growth is expected to climb and reach double-digits on mass production of 8nm computing chips and demand for 5G related chips. 

In 2020, Samsung plans on completing the product design for the 4nm process and a number of 5nm-based product designs in order to diversify its customer base and expand applications using Samsung products.

Samsung’s Display Panel Business posted KRW 8.05 trillion ($6.8 billion) in consolidated revenue and KRW 0.22 trillion ($185.8 million) in operating profit for the fourth quarter. Overall display earnings decreased sequentially due to weak performance across the business.

Samsung expects first-quarter mobile displays earnings to be challenged due to weak demand from some customers. Beyond the first quarter, demand for OLED screens is forecast to grow with wider adoption of 5G smartphones despite intensified competition. Samsung will seek to actively address demand for new applications such as foldable devices and other IT products.

Samsung also expects large displays to remain unprofitable, due to stagnant sales. Weak earnings are likely to continue for most of the year as panel oversupply persists and conversion efforts for next-generation QD-Display production incur costs. Samsung will focus on increasing profitability by expanding sales of value-added products such as ultra-large and 8K TV panels and premium monitor panels. 

While overall demand for smartphones and tablets increased quarter-to-quarter as a result of year-end seasonality, revenue for the Mobile Business decreased quarter-to-quarter as the effect from new flagship model launches faded. Samsung expects weak first-quarter demand for smartphones and tablets due to low seasonal demand. Operating profits are expected to remain flat due to higher marketing expenses used to boost flagship smartphone sales.

For the full 2020 year, while demand for 5G smartphones is expected to increase, market competition is also forecast to intensify as manufacturers increasingly adopt high performance components including APs, memory and cameras. In response, Samsung plans to differentiate its premium smartphones by expanding 5G adoption and introducing new designs for foldable products.

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