Samsung Electronics Announces Second Quarter 2021 Results

Sales of KRW 63.67 trillion is record for second quarter, operating profit at KRW 12.57 trillion

Favorable market conditions expected for components business in second half

Samsung Electronics today reported financial results for the second quarter ended June 30, 2021.

Total consolidated revenue was KRW 63.67 trillion, a 20% increase from the previous year and a record for the second quarter. Operating profit increased 34% from the previous quarter to KRW 12.57 trillion as market conditions improved in the memory market, operations normalized at the Austin foundry fab, and as effective global supply chain management (SCM) helped maintain solid profitability for the finished product businesses.

The Semiconductor business saw a significant improvement in earnings as memory shipments exceeded previous guidance and price increases were higher than expected, while the Company strengthened its cost competiveness. For the Display Panel Business, a one-off gain and an increase in overall prices boosted profits.

Earnings at the Mobile Communications Business declined from the previous quarter due to component supply shortages and COVID-19 related production disruptions. But the business posted solid profitability as the Company leveraged its global SCM capabilities, improved the cost structure and as contributions from tablets and wearables continued.

The Consumer Electronics Division posted strong results driven by increased sales of premium products as demand remained strong.

For the second half, market conditions are expected to be favorable for the component business and the Company will focus on enhancing product and technology leadership. In smartphones and consumer electronics, the Company aims to maintain solid profitability by strengthening the premium category leadership. However, risks of continued disruptions in component supply and uncertainties related to COVID-19 are likely to persist.

The Memory Business is expected to see continued demand growth for server and mobile products and the Company will accelerate migration to 15-nm DRAM and 6th-generation V-NAND as well as expand the application of extreme ultraviolet (EUV) lithography process in DRAM production. Demand for key System LSI products is expected to increase as new smartphones are introduced, while the Foundry Business will accelerate growth by expanding the Pyeongtaek S5 Line capacity and by adjusting pricing to enable future investment cycles.

For the Display Panel Business, the mobile panel segment is expected to improve as major customers launch new flagship models and the Company will focus on finalizing the mass production process for quantum-dot (QD) displays for shipment to begin within the year.

The Mobile Communications Business plans to achieve solid revenue and profit by boosting the competitiveness of the product lineup with the launch of new foldable models and the expansion of mass market 5G phones. The Company will also continue to increase sales of the Galaxy Ecosystem products. The Networks Business will drive revenue growth in key markets, including North America, and continue to explore new opportunities in Europe and other regions.

The Consumer Electronics Division will solidify leadership in the premium TV market and increase digital appliances revenue by bolstering global sales of the Bespoke product line.

The Company’s capital expenditures in the second quarter reached KRW 13.6 trillion, including KRW 12.5 trillion spent on semiconductors and KRW 0.6 trillion on displays. Total capital expenditures in the first half were KRW 23.3 trillion, including KRW 20.9 trillion for semiconductors and KRW 1.4 trillion for displays. Investment in the Memory Business was spent mainly on addressing future demand through capacity expansion and process migrations to advanced nodes. Investment in the Foundry Business focused on expansion for advanced processes such as 5-nm EUV lithography.

Semiconductor Earnings Rise; Strong Demand To Continue in 2H

The semiconductor business posted KRW 22.74 trillion in consolidated revenue and KRW 6.93 trillion in operating profit in the second quarter.

The Memory Business reported a significant increase in earnings from the previous quarter, led by strong demand for server and PC memory, as well as stronger-than-expected increases in average sales prices for both DRAM and NAND chips. Cost reduction from the ongoing adoption of latest manufacturing process also helped.

For DRAM, demand from datacenter companies was strong thanks to solid growth in Cloud service while continued trend for remote work and education lifted demand for PCs.

Demand for mobile memory, however, saw a limited impact in the short term due to recurring waves of COVID-19 outbreaks at locations of global smartphone production bases and tight supplies of key components.

The graphics market also grew in the second quarter on healthy demand for cryptocurrency and graphic cards for gaming PCs. Memory demand for game consoles also grew on new game launches, against the backdrop of rising need for home entertainment.

Samsung was able to respond promptly to the strong server and PC demand, reporting a higher bit growth than the previous guidance, thanks to a preemptive adjustment to the Company’s production mix.

As for NAND, demand was solid over sustained growth in content-per-box, particularly from major customers, even as tight supplies of components limited overall mobile phone production in the second quarter. Solid state drives (SSDs) reported growth due to increased investment in servers from datacenter companies and solid demand for laptops.

NAND shipments in the quarter also exceeded the previous bit growth guidance while the portion of 128-layer 6th-generation V-NAND continued to increase.

Looking to the second half of the year, the market is expected to see supply problems for components persist, as well as risks from the variant COVID-19 viruses and geopolitical tensions. However, the memory market’s fundamentals remain strong on the back of increasing 5G adoption and sustained demand for servers and PCs.

Memory demand will likely be buoyed by new smartphone model launches, with the wider 5G availability driving growth in content-per-box. Increasing adoption of the latest CPU, along with growing enterprise PC demand to support the new remote work dynamics, is expected to support memory demand for servers and PCs. At the same time, Samsung’s chip inventory level has fallen to a substantially low level due to the stronger shipment last quarter than the previous guidance.

Samsung will continue to manage production mix in a flexible manner and enhance capabilities to meet fluctuating market demand. The Company will further cement its leadership in cutting-edge chip technology and is set to begin mass production of 14-nm DRAM using the EUV-based process, based on the industry’s smallest design rule in the 14-nm class, in the second half. Samsung will also start mass production of consumer SSD adopting the double-stack based 176-layer 7th generation V-NAND, using the finest etching technology, during the second half.

The System LSI Business saw its earnings improve in the second quarter with a solid demand for 100 Mp image sensors from Chinese customers and as production normalized at the Austin fab. However, improvement was somewhat limited due to a decrease in flagship smartphone launches and SoC demand amid weak seasonality.

The Company also released an image sensor that applies 0.64μm ISOCELL, which is the smallest pixel size in the industry, and also the Company’s first product of the image sensor for automotive and expanded its business areas by releasing 3 types of PMICs for DDR5 DRAM modules.

In the second half of the year, especially third quarter, the overall earnings is expected to improve amid rising demand for SoC and OLED DDI as we enter strong seasonality for smartphones and TVs.

The Foundry Business saw its earnings improve thanks to early normalization of the Austin fab and maximized chip supply capabilities.

In the second half of this year, the Company expects to see a continued 5G penetration, work-from-home trend, and customers securing safety stock resulting in higher market growth than before.

To meet this rising demand, the Company will maximize its capabilities to supply chips via full-fledged operation of Pyeongtaek S5 Line, and target annual sales growth of well over 20% through pricing strategies to sustain future investment as well as customer and application diversification.

Display Earnings Improve on One-off Gain and ASP Rise 

The Display Panel Business posted KRW 6.87 trillion in consolidated revenue and KRW 1.28 trillion in operating profit for the second quarter. Its earnings improved from the previous quarter despite weak seasonality for mobile products, primarily due to a one-time gain as well as an increase in overall ASP.

Mobile display saw its earnings grow as the continued adoption of OLED panels by customers helped its profit margin remain strong. Compared to a year earlier, both sales and operating profit increased substantially because of wider adoption of OLED displays as well as the base effect. For large displays, while the conversion of manufacturing lines to QD displays affected revenues, profitability improved thanks to the increased ASP of panels for TVs and monitors.

Looking ahead to the second half, Samsung expects demand to recover for mobile displays as major customers are planning to launch new flagship models, including high-value products such as foldable phones. However, there are concerns that a supply crunch of certain components such as DDIs may affect shipments for some customers. Meanwhile, the Company forecasts the sales of IT devices and portable gaming products featuring OLED screens to grow in earnest.

Samsung will continue to strengthen its market leadership by introducing new technologies such as Under Panel Camera (UPC) and low-power consumption related one. For large displays, the Company will focus on finalizing the mass production process for QD display to allow product shipments to start within the year.

Mobile Profitability Remains Solid in Q2; To Strengthen Leadership in Premium Segment in 2H

The IT & Mobile Communications Division posted KRW 22.67 trillion in consolidated revenue and KRW 3.24 trillion in operating profit for the second quarter.

Overall market demand decreased from the previous quarter due to the impact of weak seasonality and prolonging COVID-19. The Mobile Communications Business saw revenue decrease compared to the previous quarter, influenced by a component supply shortage in the industry as well as production disruptions in its Vietnam factory. However, the Company secured solid double-digit operating profit margin by minimizing impact through rebalancing supply with its global SCM capabilities and improving cost structure. Device Ecosystem products such as tablet, wearables also contributed to the second quarter profit.

Looking ahead to the second half, mobile market is forecast to recover to the pre-COVID level on an annual basis as 5G adoption and contactless trend continue to thrive. However, uncertainties over component supply and COVID-19 will continue to persist. The Company will strive to achieve solid revenue and profits by enhancing the competitiveness of its smartphone lineup with the launch of new foldable models and expansion of mass-market 5G models. Also, it will further increase sales of the Galaxy Ecosystem products.

With successful launch of the new foldable smartphones with further enhanced user experience, the Company will solidify its leadership in the premium segment by mainstreaming the foldable category while continuing the sales momentum of Galaxy S series throughout the year.

As for the Networks Business, the Company improved performance compared to the previous quarter backed by growth of its North America business and 5G networks expansion in South Korea. The Company will strive to drive sales growth in North America and Japan while exploring new business opportunities in Europe and other markets.

Solid Earnings for both TV and Appliances; To Continue Focus on Premium Product Sales

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 13.4 trillion in consolidated revenue and KRW 1.06 trillion in operating profit in the second quarter.

Overall market demand for TVs decreased from the previous quarter due to low seasonality, but was higher compared to a year earlier. Expanded sales of premium products including the newly launched Neo QLED, and a timely response, based on operational efficiency, to demand generated by global sporting events allowed the Company to post solid profits in the second quarter.

The Digital Appliances Business also posted steady results, buoyed by sustained pent-up demand in the quarter. The Company launched its Bespoke lineup in global markets in May, garnering positive initial feedback from the market. New lifestyle products including the Shoe Dresser and cordless Stick Vacuum Cleaner also led to expanded sales.

Looking ahead to the second half, COVID-19 related uncertainties continue to pose a risk for both TV and Digital Appliances businesses. However, the Company looks forward to improved demand for TVs compared to the first half of the year, due to stronger seasonality.

The Company will closely monitor rapidly changing market conditions, and swiftly respond to changes in demand with its advanced SCM capabilities. Expanded sales of premium products via peak-season promotions tailored by region, enhanced online and offline buying experiences, and improved operational efficiency are part of the plan to secure profitability.