Samsung Trickle Down Theory
Last year Samsung Electronics (005930.KS) shipped 270.5m mobile units, up 5% y/y and had high hopes for smartphone shipments this year, at least at the end of last year, but the most recent prognostications from the share leader now call for mobile shipments to be down slightly for the year, after a 14.4% decline in shipments in 2Q and the specter of excessive inventory both at Samsung and across much of the smartphone industry. Samsung indicted that it is focusing on the premium smartphone segment and expects to see sales and ASPs increase in that category as it garners increasing shipments of its foldable smartphone line, but it is still competing with Chinese smartphone brands in the mid-range price tier, where the highest unit volumes take place.
In that regard, Samsung reduced orders from component suppliers in 2Q and has hinted about other cost saving measures some of which relate to cameras and camera module reductions in mid-tier models. While the full impact of those changes has not been felt, the overall component order reductions are just coming to the surface as South Korean camera and related component suppliers begin to report 2Q results. Most recently Partron (091700.KS), a long-time Samsung camera module supplier, reported a 21% drop in sales q/q and a 5% drop y/y/, with operating profit declining 61% q/q and 45% y/y, and Samsung Electro-Mechanics (009150.KS), 23.7% of which is owned by Samsung Electronics, saw its optical solutions division’s 2Q sales decline 10% q/q and 4% y/y. SEMES has focused on supplying its parent with camera modules for its high end lines, such as the Galaxy S and Note series, but has more recently been supplying modules for the A series, again a mid-tier line where the competition is quite intense.
There are a number of other similar suppliers in Korea that have likely faced the same challenges in 2Q as suppliers of optical components and cameras to Samsung but have not yet reported results, such as MCNEX (097520.KS), Power Logics (047310.KS), Cammsys (050110.KS), Namuga (190510.KS), and Coasia Optics (196450.KS), but more to the point will Samsung’s longer cost cutting measures magnify the slower sales of smartphones for the remainder of the year and into next year? We expect that the ‘camera wars’ which have led to the proliferation of multiple cameras, with some models having 5 or 6 front and rear cameras, has come to an end, although we expect the focus to now shift to ever higher resolution cameras and better image stabilization systems rather than an excessive number of cameras. That said, it would seem that at least the next few quarters will be bumpy for Samsung’s local camera component supply chain as Samsung and the industry readjust order levels to lower demand.
In that regard, Samsung reduced orders from component suppliers in 2Q and has hinted about other cost saving measures some of which relate to cameras and camera module reductions in mid-tier models. While the full impact of those changes has not been felt, the overall component order reductions are just coming to the surface as South Korean camera and related component suppliers begin to report 2Q results. Most recently Partron (091700.KS), a long-time Samsung camera module supplier, reported a 21% drop in sales q/q and a 5% drop y/y/, with operating profit declining 61% q/q and 45% y/y, and Samsung Electro-Mechanics (009150.KS), 23.7% of which is owned by Samsung Electronics, saw its optical solutions division’s 2Q sales decline 10% q/q and 4% y/y. SEMES has focused on supplying its parent with camera modules for its high end lines, such as the Galaxy S and Note series, but has more recently been supplying modules for the A series, again a mid-tier line where the competition is quite intense.
There are a number of other similar suppliers in Korea that have likely faced the same challenges in 2Q as suppliers of optical components and cameras to Samsung but have not yet reported results, such as MCNEX (097520.KS), Power Logics (047310.KS), Cammsys (050110.KS), Namuga (190510.KS), and Coasia Optics (196450.KS), but more to the point will Samsung’s longer cost cutting measures magnify the slower sales of smartphones for the remainder of the year and into next year? We expect that the ‘camera wars’ which have led to the proliferation of multiple cameras, with some models having 5 or 6 front and rear cameras, has come to an end, although we expect the focus to now shift to ever higher resolution cameras and better image stabilization systems rather than an excessive number of cameras. That said, it would seem that at least the next few quarters will be bumpy for Samsung’s local camera component supply chain as Samsung and the industry readjust order levels to lower demand.
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