Samsung Electronics Announces Fourth Quarter and FY 2019 Results

Reports quarterly operating profit of KRW 7.16 trillion on sales of KRW 59.88 trillion
Expects overall improvements in 2020, global uncertainties remain

Samsung Electronics today reported financial results for the fourth quarter ended December 31, 2019 and the fiscal year 2019. The Company posted KRW 59.88 trillion in consolidated quarterly revenue and KRW 7.16 trillion in quarterly operating profit.

For 2019, Samsung reported KRW 230.40 trillion in revenue and KRW 27.77 trillion in operating profit.

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 ease the decline in overall earnings.

The 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. The logic chip business posted a YoY profit growth on demand for high-resolution image sensors and HPC (high performance computing) chips.

The 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 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.

The Consumer Electronics Business also reported a YoY increase in earnings, 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.

The seasonal effects will likely limit profits in the Memory Business while the outlook is also negative for the Display Panel Business due to slowing demand.

First quarter profit from the Mobile Business is seen steady quarter-on-quarter, as new flagship and foldable models will improve sales but incur additional marketing costs.

Looking ahead to 2020, Samsung expects improvements in overall business performance but also sees continued uncertainties in the global business environment.

Memory market conditions will likely improve gradually thanks to increasing demand from data center companies and 5G smartphone adoption. However, the actual pace of 5G expansion and its effects on DRAM content remain to be seen. The Company 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.

The System LSI Business will offer differentiated 5G System-on-Chip products and high-resolution sensors. The 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. In Displays, Samsung will prioritize on responding to growing adoption of OLED and folding screens.

The Mobile Business aims to improve profits by expanding sales of premium models, such as the enhanced 5G lineup and new foldable devices. The Network Business will focus on addressing the global 5G market as its Korean business is set to shrink following last year’s nationwide 5G adoption.

In the Consumer Electronics Division, the Company will seek to increase sales of QLED 8K TVs and launch new premium appliances such as Bespoke and new lifestyle models.

Samsung Electronics’ capital expenditure in 2019 totaled at KRW 26.9 trillion, including KRW 22.6 trillion spent on semiconductors and KRW 2.2 trillion on displays. In 2020, the Company will be flexible in capex execution to meet changing demand from markets, while continuing investment in infrastructure and mid- to long- term business opportunities.

Weakness Looms After Semiconductor Demand Rises in Fourth Quarter

The Semiconductor businesses posted KRW 16.79 trillion in consolidated revenue and KRW 3.45 trillion in operating profit in the fourth quarter.

The Memory Business saw solid market demand in the fourth quarter, led by growing demand from server customers. Demand for major applications like those related to 5G network expansions also contributed to gains. On a quarterly basis, earnings improved on cost reduction from process migration and increased sales of differentiated products.

The Company also exceeded its shipment volume guidance for the fourth quarter on proactive responses to demand for all applications.

In the case of DRAM, server demand increased primarily centered on high-density products as datacenters, as well as customers in China boosted orders as a result of new CPU adoption. For mobile, the growing sophistication of mid-to-high end smartphones drove up content per handset in addition to positives linked to 5G network expansions. For PC, negative issues like a CPU shortage were offset by an increase in set-builds at OEM customers, keeping purchasing demand solid.

For NAND, demand was higher than expected thanks to new smartphone launches generating orders for high density models. Increased demand for SSD from server applications also helped performance.

In the first quarter of 2020, overall DRAM demand is seen softening on seasonal effects, although some purchases for mobile and server applications will remain relatively solid. The Company aims to reinforce its cost competitiveness by expanding node migration to 1Y-nm-scale products and utilizing its flexible product mix to respond to demand for high density products.

Also in the January-March period, NAND prices are expected 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.

In 2020 on a whole, server demand for DRAM is seen solid on the back of increased investments by data centers. For mobile, the pace of 5G expansion and its effects should be monitored closely but the Company sees demand picking up around mass-market models as major manufacturers expand their 5G smartphone lineups. Construction of 5G networks in China will also drive demand for consumer products this year.

In the case of NAND, server SSD demand from data centers is expected to continue growing this year while the expansion of 5G networks may reinforce the high-density memory demand for mobile devices. The Company also expects new demand from applications such as gaming and automotive.

Meanwhile, earnings for the System LSI Business declined on-quarter as the peak season for mobile handsets faded. In the first quarter of 2020, the Company plans to maximize shipments of major components like APs, image sensors and DDIs adopted by Samsung’s major customers for new flagship smartphones.

In 2020, the System LSI Business plans to expand its 5G chip business by promoting one-chip solutions for mass-market devices. Demand for image sensors is seen rising in 2020 on intensifying competition for better camera specs.

Lastly, the Foundry business saw solid results in the fourth quarter on 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, the Company 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.

As Earnings Suffer, Display Business to Focus on Securing Profitability

The Display Panel Business posted KRW 8.05 trillion in consolidated revenue and KRW 0.22 trillion in operating profit for the fourth quarter. Overall display earnings decreased QoQ due to weak performance across the business.

Mobile display earnings saw profit decline because of a higher cost burden caused by lower fab utilization amid weaker demand for some premium products. Large displays suffered a bigger loss from a continued decline in LCD panel prices.

Looking ahead to the first quarter of 2020, Samsung expects a further drop in mobile displays earnings due to weak demand from some customers. The Company will strive to enhance profitability by offering more panels with distinct designs, expanding its IT product customer base and strengthening price competitiveness.

Large displays are likely to stay in the red owing to stagnant sales amid weak seasonal effects.

In 2020, for the mobile display business, demand for OLED screens is forecast to grow with wider adoption of 5G smartphones despite intensified competition. The Company will make efforts to expand sales and boost utilization with a broader customer base and stronger product competitiveness. Especially, Samsung will seek to actively address demand for new applications such as foldable devices and other IT products.

For large displays, weak earnings are likely to continue this year as panel oversupply persists and conversion efforts for next-generation QD-Display production incur costs. The Company will focus on securing profitability by expanding sales of value-added products such as ultra-large and 8K TV panels and premium monitor panels.

Mobile To Focus On New Flagship and Foldable Models

The IT & Mobile Communications Division (IM) posted KRW 24.95 trillion in consolidated revenue and KRW 2.52 trillion in operating profit for the fourth quarter of 2019.

While overall demand for smartphones and tablets increased QoQ as a result of year-end seasonality, revenue for the Mobile Business decreased QoQ as the effect from new flagship model launches faded. However, the profit drop was capped by effective use of marketing expenses for the holiday season and as the profitability of major smartphones including the Galaxy A series held steady.

Looking ahead to the first quarter, weak demand is seen for smartphones and tablets due to low seasonal demand. In these circumstances, Samsung expects smartphone revenue to rise on improved product mix with the launch of new flagship models and foldable smartphones. However, operating profits are expected to remain flat due to higher marketing expenses used to boost flagship smartphone sales.

For the whole of 2020, 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, the Company plans to differentiate its premium smartphones by expanding 5G adoption and introducing new designs for foldable products.

Furthermore, Samsung will expand its 5G product portfolio and strengthen product competitiveness of mass-market smartphones by quickly adopting innovative technology based on market needs. With these efforts, the Company aims to improve earnings YoY by expanding sales of premium smartphones and enhancing the competitiveness of its mid- to low-end lineup.

As for the Network Business, while total revenue in the fourth quarter decreased QoQ as 5G network adoption in South Korea was concentrated in the first half, 5G revenue increased in overseas markets, including the United States and Japan. For 2020, although 5G business in the domestic market is expected to decline YoY, Samsung will expand 5G network solutions in overseas markets by solidifying its core competencies and increasing cooperation with major business partners.

Premium TVs and Appliances Shine in Fourth Quarter; Risks Mixed Ahead

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 12.71 trillion in consolidated revenue and KRW 0.81 trillion in operating profit for the fourth quarter of 2019.

In the fourth quarter, earnings for the Visual Display Business improved both QoQ and YoY on the back of successful promotion efforts during the year-end peak season. Sales of QLED TVs and TVs with 75-inches-and-above screens were especially notable, showcasing an improved product mix for the Company.

In particular, QLED TV sales in the fourth quarter exceeded twice the amount sold in the same period a year ago.

However, the Company forecasts market demand in the first quarter to decline QoQ following the year-end peak season, and also YoY due to weaker demand in developed markets.

In 2020 on a whole, the global TV market faces geopolitical risks, but global TV demand is expected to climb thanks to sports events like the UEFA European Football Championship and the Summer Olympic Games.

For the Digital Appliance Business in the fourth quarter, earnings rose on increased demand in emerging markets including India. Revenue and profit both improved YoY as sales of premium products like the Bespoke refrigerator and large dryers grew.

Samsung plans to continue launching new lifestyle digital appliances and premium products to seek growth in the first quarter. For the whole year, the Company sees uncertainties from global economic sluggishness but will aim to offset risks through the expansion of its premium lineup and more B2B opportunities.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2017~2019)

Note 1: Sales for each business include intersegment sales

Note 2: CE (Consumer Electronics), IM (IT & Mobile Communications), DS (Device Solutions), DP (Display Panel)

Note 3: Information on annual earnings is stated according to the business divisions as of 2019