Hwasung wafer fabrication facilities


(iTers News) – No companies in the world have integrated its operations better than Samsung Electronics so widely and deeply from west to east as well as top to bottom.


The well-established vertical integration of its business operations has paid off in surprisingly big way, as its two flagship businesses - semiconductor chips and mobile phones- have well worked in unison to keep the company relatively resilient from global economic recessions.


While other backyard rivals –Hynix Semiconductor and LG Electronics- were bleeding money, Samsung Electronics turned out to stay profitable in the third quarter ended on Sept. 31.


Delivering on its earlier earnings guidance, the world’s largest memory chipmaker said today it chalked up an operating profit of 4.25 trillion won on consolidated revenues of 41.27 trillion won, which were up 5% quarter-on-quarter.


The 3rd quarter operating profit was up 13% quarter-on-quarter, but down by the same margin year-on-year, reflecting worldwide economic woes as well as slumped global T market demand.


“Despite economic slowdowns in developed markets, Samsung achieved a solid performance in the 3rd quarter, regaining growth momentums. In the 2nd quarter, we slipped into a single digit operating profit margin, but we rallied to a double digit operating profit margin in the third quarter, mainly led by buoying sales of smartphones,“ said Robert Yi, vice-president and head of investor relations. Samsung’s profit margin was 10.3% in the third quarter.


Mobile phone business accounts for half its profits


The biggest money spinner was its mobile phones business, especially smartphones.


Powered by exploding demand for Galaxy SII smartphones, Samsung’s telecommunications business unit inked an operating profit of 2.52 trillion won on revenues of 14.90 trillion won by selling feature phones, smartphones, tablet PCs, and communications infrastructure equipment.


Except for infrastructure equipment, pure sales of feature phones, smartphones, and tablet PCs hit 14.42 trillion won, mainly propelled by buoying sales of smartphones. Shipments of smartphones by value were up more than 40% quarter-on-quarter and 300 % year-on-year. In the third quarter, Samsung shipped approximately 27.8 million units of smart phones, or 23.8% of global shipments, zooming past Apple as world’s No.1 smartphone maker, according to market research firm Strategy Analytics. Apple Inc. was estimated to sell 17. 07 million units in the same quarter, taking up 14.6% share of worldwide samrtphone market.


Due to such strong sales of profitable smartphones, the telecommunications business unit outmaneuvered its long-time crown jewel semiconductor business as the No. 1 money spinner, making up more than half of its 3rd quarter profits. The business unit’s profit margin was 16.9%, 6.2 percentage points up year-on-year.


The  smartphne bonanza also proves a big boon for its semiconductor chip business, becasue  it creates huge captive markets for memory chips and mobile applications processor  chips.  Even if its profitability was cut in half from a year ago,  the semiconductor business unit is still strong enough to stay in the black.


The semiconductor business scored an operating margin of 1.59 trillion won on revenues of 9.48 trillion won, falling a prey to freefalls in prices of DRAM chips and NAND flash memory chips.


The 3rd quarter revenues for the semiconductor business were down 11% year-on-year, too, while its operating profit was halved from a year ago.


Compared with other rivals both at home and abroad, however, the chipmaker remained less vulnerable from what’s ill-famed as the memory chip industry’s worst slump ever in 10 years, boasting an operating profit margin of 16.8%.


Its earlier ramp-up to leading-edge 30nm manufacturing process and shift away from commodity DRAM chip markets have combined to help the chipmaker out of the industry’s cyclical downturns.


samsung-galaxy-tab-1


Technology leadership and foray into non-PC markets help out


While other money-losing memory chip makers are still struggling with a laggard 40nm process, Samsung is fabricating most of its memory chip production with the industry’s cutting-edge 30nm manufacturing process.


Called after the width of a circuitry of a chip, the 20nm design rule translates into 60% higher productivity, significant cost-cuts, and, more importantly, faster read and write capabilities, compared with the 40nm process. That add-on value enables the chip maker to charge premiums on sales, allowing it to  make money even at the industry’s lowest contract price ever of US$0.65 for a 2.0 Gb DDR3 DRAM chip.


Equally helpful was its shy away from low margin commodity DRMA chips for PCs into more lucrative and premium DRAM chip product lines up for mobile, graphics, and server computer markets. Samsung chalked up 5.50 trillion won in sales of memory chip solutions, including NAND/NOR flash, DRAM/ SRAM, SSDs, and other memory chip product line-ups. That was down down from 7.49 trillion won in the same period of 2010 and 5.89 trillion won in the second quarter of this year.


Buoying shipments of applications processor chips and CMOS image sensor chips also made a contribution. (see next story)      


OLED Panel Sales Brighten Outlook


The Display Panel Business recorded an operating loss of 90 billion won on revenue of 7.08 trillion won, representing a decline in sales of 13%, compared with the same period last year. Global market demand for large size LCD panels was flat with shipments rising just 1% quarter-on-quarter to 179 million units, while average sales prices of panels fell across the notebook PC, monitor and TV panel segments.


However, Samsung’s overall on-quarter profitability improved on the back of demand for OLED panels from the growing tablet device market.


Sales of light-emitting diode (LED)-lit LCD panels for TVs also showed continuous growth. Affected by the global economic slowdown, panel sales growth will continue to be limited in the fourth quarter, although the year-end and Chinese New Year holidays are expected to lift up demand.


As demand for tablet devices increases, Samsung expects to maintain strong earnings momentum in the OLED business by broadening its customer base and offering a diverse product lineup.


The evolution of the industry will continue with LED TV panels sales expected to rise to account for more than 50 percent of the global market in the fourth quarter.


Digital Media & Appliances Defies Market Conditions


The Digital Media & Appliances businesses – including Visual Display, IT Solutions, Digital Imaging and Digital Appliances – posted revenues of 14.36 trillion won for the third quarter. Samsung’s shipments of flat panel TVs outstripped market growth of more than 10 %tquarter- on-quarter, which was led by demand in emerging markets.


Profitability also improved quarter-on-quarter as LED-lit LCD TV sales made up 50% of all Samsung LCD TVs sold for the quarter, reflecting the growing adoption of the new premium technology.


With peak seasonal demand in the fourth quarter expected to increase 30% sequentially, Samsung aims to outperform the market and enhance profitability through marketing and sales expansion of premium products such as LED-lit LCD TVs and Smart TVs.


For the Digital Appliances Business, the economic slowdown in developed markets resulted in weakening revenue and profitability, even if sales grew in some emerging markets, including the CIS and Africa.


 


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