Samsung 1Q
Samsung Electronics (005930.KS) reported 1Q revenue of 65.4twon ($59.0b US), up 6.2% q/q and 18.2% y/y to a new 1Q record and operating profit increased 3.9% q/q and 45.7% y/y. Samsung makes it easy to understand how the quarter progressed and what they expect for next quarter and the 2nd half, although much is standard company-speak with no information. Rather than draw out the conference call text, we post the results & outlook page of their presentation and add comments where appropriate.
Semiconductors
Memory
1Q Results Despite higher-than-expected shipments backed by strong demand from PC and mobile, profit decreased slightly Q-Q due to initial costs associated with advanced process migration and a continued downward trend in NAND prices.
2Q Outlook Profit to improve significantly amid favorable business conditions, which include strong demand mainly for server/PC. Demand driven
2H Outlook Overall demand for server/mobile/PC, etc., to stay solid.
DRAM
1Q Results Actively addressed growing PC/consumer demand as well as solid mobile demand.
2Q Outlook Enhance market competitiveness via ramp up of 15-nano process.
2H Outlook Strengthen technology competitiveness by applying EUV to 14-nano DRAM based on cutting-edge technology
NAND
1Q Results Actively addressed demand from client/server SSD and mobile. High cost of 3–5nm process node buildout to compete with Taiwan Semiconductor (TSM).
2Q Outlook Accelerate migration, mainly for the industry’s only single-stack based 6th-generation 512 Gb V-NAND and actively address an increase in demand for high-capacity products of 8TB or more.
2H Outlook Accelerate migration to 6th-generation V-NAND
IT & Mobile
Mobile
1Q Results Revenue and profitability grew significantly backed by 1) increased sales of flagship models as Galaxy S21 has been well received by consumers. High-end 2) Increased sales of mass-market models equipped with price competitiveness and strong features. Low to Mid-tier 3) Growing contributions from Devices Eco system products including tablets, PCs, and wearables.
2Q Outlook Sales of newly-introduced A series to accelerate and sales of tablets and wearables to be solid but weakening new product effects for flagship models and short supply of some components may lead to a decline in revenue. Working to minimize impacts of component issue via supply rebalancing based on our global SCM capabilities and secure solid profitability.
2H Outlook Work to achieve solid profits by 1) strengthening leadership in premium segment by sustaining sales momentum of Galaxy S series and by popularizing the foldables category 2) maximizing sales of our new competitive 5G models for mass market 3) driving full-fledged growth of the Device Ecosystem which includes tablets, PCs, and wearables.
Network
1Q Results Revenue improved q/q led by performances in North America and Japan, and profitability remained solid.
2Q Outlook Address expanding 5G commercialization in Korea and continue roll outs in North America, Southwest Asia, etc.
2H Outlook Remain active in 5G commercialization in Korea and overseas, while continuing to seek new business opportunities.
Consumer Electronics
TV
1Q Results Proactively addressed market demand using global SCM capabilities and achieved revenue growth y/y by expanding sales of premium products. Newly launched Neo QLED models delivered strong sales at the early stage and garnered praise from the market.
2Q Outlook Capture demand induced by sporting events by focusing on sales of new/premium products such as Neo QLED TVs. Strengthen leadership with launch of micro-LED TV for home. Micro-LED TV not mass market product.
2H Outlook Keep monitoring market conditions and preemptively address shifts in the market. Strengthen premium leadership and continue sustainable growth by expanding sales of Lifestyle products designed to satisfy the diverse needs of our consumers and high-value products such as Micro-LED TV, Neo QLED TVs, etc.
Digital Appliances
1Q Results Revenue improved q/q and y/y led by increasing sales of premium products such as Bespoke and Grande AI appliances, and through efficient operation via modernization.
2Q Outlook Expand global launches of Bespoke products. Achieve growth throughout lineup by increasing sales based on products customized to emerging markets and by popularizing our differentiated Windfree air conditioners.
2H Outlook Keep gaining growth momentum with innovative products as well as New Life products and by fostering growth channels.
On an overall basis 1Q was a strong quarter for Samsung and was a record 1Q in terms of sales and far above the 5 year 1Q q/q average of -7.9% and the 5 yr. y/y average of +3.8%. While we certainly care about Samsung’s semiconductor business, our focus is still on display, TV, and mobile. In order to put those in perspective, we show each category in reference to Samsung’s 1Q results in the table below. We note that display references Samsung Display, and the mobile numbers are for handsets only and do not include networking products..
Semiconductors
Memory
1Q Results Despite higher-than-expected shipments backed by strong demand from PC and mobile, profit decreased slightly Q-Q due to initial costs associated with advanced process migration and a continued downward trend in NAND prices.
2Q Outlook Profit to improve significantly amid favorable business conditions, which include strong demand mainly for server/PC. Demand driven
2H Outlook Overall demand for server/mobile/PC, etc., to stay solid.
DRAM
1Q Results Actively addressed growing PC/consumer demand as well as solid mobile demand.
2Q Outlook Enhance market competitiveness via ramp up of 15-nano process.
2H Outlook Strengthen technology competitiveness by applying EUV to 14-nano DRAM based on cutting-edge technology
NAND
1Q Results Actively addressed demand from client/server SSD and mobile. High cost of 3–5nm process node buildout to compete with Taiwan Semiconductor (TSM).
2Q Outlook Accelerate migration, mainly for the industry’s only single-stack based 6th-generation 512 Gb V-NAND and actively address an increase in demand for high-capacity products of 8TB or more.
2H Outlook Accelerate migration to 6th-generation V-NAND
IT & Mobile
Mobile
1Q Results Revenue and profitability grew significantly backed by 1) increased sales of flagship models as Galaxy S21 has been well received by consumers. High-end 2) Increased sales of mass-market models equipped with price competitiveness and strong features. Low to Mid-tier 3) Growing contributions from Devices Eco system products including tablets, PCs, and wearables.
2Q Outlook Sales of newly-introduced A series to accelerate and sales of tablets and wearables to be solid but weakening new product effects for flagship models and short supply of some components may lead to a decline in revenue. Working to minimize impacts of component issue via supply rebalancing based on our global SCM capabilities and secure solid profitability.
2H Outlook Work to achieve solid profits by 1) strengthening leadership in premium segment by sustaining sales momentum of Galaxy S series and by popularizing the foldables category 2) maximizing sales of our new competitive 5G models for mass market 3) driving full-fledged growth of the Device Ecosystem which includes tablets, PCs, and wearables.
Network
1Q Results Revenue improved q/q led by performances in North America and Japan, and profitability remained solid.
2Q Outlook Address expanding 5G commercialization in Korea and continue roll outs in North America, Southwest Asia, etc.
2H Outlook Remain active in 5G commercialization in Korea and overseas, while continuing to seek new business opportunities.
Consumer Electronics
TV
1Q Results Proactively addressed market demand using global SCM capabilities and achieved revenue growth y/y by expanding sales of premium products. Newly launched Neo QLED models delivered strong sales at the early stage and garnered praise from the market.
2Q Outlook Capture demand induced by sporting events by focusing on sales of new/premium products such as Neo QLED TVs. Strengthen leadership with launch of micro-LED TV for home. Micro-LED TV not mass market product.
2H Outlook Keep monitoring market conditions and preemptively address shifts in the market. Strengthen premium leadership and continue sustainable growth by expanding sales of Lifestyle products designed to satisfy the diverse needs of our consumers and high-value products such as Micro-LED TV, Neo QLED TVs, etc.
Digital Appliances
1Q Results Revenue improved q/q and y/y led by increasing sales of premium products such as Bespoke and Grande AI appliances, and through efficient operation via modernization.
2Q Outlook Expand global launches of Bespoke products. Achieve growth throughout lineup by increasing sales based on products customized to emerging markets and by popularizing our differentiated Windfree air conditioners.
2H Outlook Keep gaining growth momentum with innovative products as well as New Life products and by fostering growth channels.
On an overall basis 1Q was a strong quarter for Samsung and was a record 1Q in terms of sales and far above the 5 year 1Q q/q average of -7.9% and the 5 yr. y/y average of +3.8%. While we certainly care about Samsung’s semiconductor business, our focus is still on display, TV, and mobile. In order to put those in perspective, we show each category in reference to Samsung’s 1Q results in the table below. We note that display references Samsung Display, and the mobile numbers are for handsets only and do not include networking products..
TV is typically down in1Q (q/q), given holiday sales in the previous quarter, but that decline was far less than typical, and we put less weight on the y/y 1Q TV sales given that 1Q last year was right at the beginning of the COVID-19 pandemic, but while Samsung’s 1Q TV business was affected by the onset of COVID-19 last year, it was down only 3.25% from the previous year, which we see as marginal, so Samsung’s 1Q y/y strength in TV sales was more telling than usual, despite the 4Q/1Q decline. Display however saw a much larger than average decline in 1Q sales on a q/q basis, but Samsung Display has been reducing its exposure to the large panel LCD business and has converted and sold such fabs, which skews the sales numbers.. That said, even with those changes, display sales were up substantially more than the average on a y/y basis, indicating the effect of rising panel prices.
Mobile had an outstanding 1Q, with near record sales, and both q/q and y/y metrics far above 5 year averages. The Galaxy S21 ha sold well, we believe a result of lower prices vs. last year’s models, although Samsung is expecting some of that momentum to tail off in 2Q. We expect the concept of assumed yearly incremental flagship model price increases has become less of a focus for the company’s smartphone business, at least for now, given this year’s success, which could improve the Galaxy S series sales performance over the long-term, and while still a bit of a novelty, the company hopes to augment high-end sales with an increasing number of foldables. While flagship sales will slow in 2Q, Samsung will try to fill the gap with its Galaxy A series, a group of mid-tier smartphones that start at ~$450 and reach a low of ~$120. While these are popular Samsung phones, Samsung has kept prices very close to last year’s models, which will likely not give them the boost that the S21 series saw, and they could face some component shortages, which is why 2Q outlook for mobile is less enthusiastic.
The overall outlook for 2H from Samsung was about as non-committal as possible, with comments like ‘fostering growth channels,” and “monitoring market conditions”, other than in semis, where they expect strength to continue. With the constantly changing outlook for COVID-19 from a global perspective, and the potential for continuing component shortages, Samsung is taking a bit more of a ‘wait-and-see’ attitude than LG Display (LPL), who was a bit more fearful that what has become ‘stay-at-home norm’ for demand could change in 2H. Samsung does have the semiconductor business as an offset to consumer electronics that most others do not have, but underlying demand for semiconductors is driven, in part by demand from CE products and will face some ‘rebalancing’ if COVID-19 is further contained and there is less of a consumer ‘sequestered’ attitude.
Mobile had an outstanding 1Q, with near record sales, and both q/q and y/y metrics far above 5 year averages. The Galaxy S21 ha sold well, we believe a result of lower prices vs. last year’s models, although Samsung is expecting some of that momentum to tail off in 2Q. We expect the concept of assumed yearly incremental flagship model price increases has become less of a focus for the company’s smartphone business, at least for now, given this year’s success, which could improve the Galaxy S series sales performance over the long-term, and while still a bit of a novelty, the company hopes to augment high-end sales with an increasing number of foldables. While flagship sales will slow in 2Q, Samsung will try to fill the gap with its Galaxy A series, a group of mid-tier smartphones that start at ~$450 and reach a low of ~$120. While these are popular Samsung phones, Samsung has kept prices very close to last year’s models, which will likely not give them the boost that the S21 series saw, and they could face some component shortages, which is why 2Q outlook for mobile is less enthusiastic.
The overall outlook for 2H from Samsung was about as non-committal as possible, with comments like ‘fostering growth channels,” and “monitoring market conditions”, other than in semis, where they expect strength to continue. With the constantly changing outlook for COVID-19 from a global perspective, and the potential for continuing component shortages, Samsung is taking a bit more of a ‘wait-and-see’ attitude than LG Display (LPL), who was a bit more fearful that what has become ‘stay-at-home norm’ for demand could change in 2H. Samsung does have the semiconductor business as an offset to consumer electronics that most others do not have, but underlying demand for semiconductors is driven, in part by demand from CE products and will face some ‘rebalancing’ if COVID-19 is further contained and there is less of a consumer ‘sequestered’ attitude.
Samsung Electronics - 5 Year Quick Financials - Source: Company Data
Samsung Electronics - Divisional Revenue Share - Source: SCMR LLC, Company Data
Samsung Electronics - Divisional Operating Margins (Reported) - Source: SCMRLLC, Company Data
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