Samsung Electronics Announces Second Quarter 2023 Results

Quarterly revenue of KRW 60.01 trillion, operating profit at KRW 0.67 trillion Global IT demand and business environment to recover gradually in 2H; macroeconomic risks remain

Samsung Electronics today reported financial results for the second quarter ended June 30, 2023.

The Company posted KRW 60.01 trillion in consolidated revenue, a 6% decline from the previous quarter, mainly due to a decline in smartphone shipments despite a slight recovery in revenue of the DS (Device Solutions) Division. Operating profit rose sequentially to KRW 0.67 trillion as the DS Division posted a narrower loss, while Samsung Display Corporation (SDC) and the Digital Appliances Business saw improved profitability.

The Memory Business saw results improve from the previous quarter as its focus on High Bandwidth Memory (HBM) and DDR5 products in anticipation of robust demand for AI applications led to higher-than-guided DRAM shipments. System semiconductors posted a decline in profit due to lower utilization rates on weak demand from major applications.

In the mobile panel business, earnings were similar to the previous quarter on the back of solid sales of premium panels, while the large panel business continued to focus on QD-OLEDs in the premium market.

The Device eXperience (DX) Division achieved strong profitability due to higher sales of premium TVs and digital appliances, an improved cost structure and increased operational efficiency. The Networks Business’s revenue declined in major overseas markets including North America and Japan.

Harman posted revenue and profit growth, led by demand for consumer audio such as portable and True Wireless Stereo products. Harman also won the largest automotive order in its history in the quarter.

The weakness of the Korean won against the US dollar, euro and major emerging currencies resulted in a positive impact on company-wide operating profit.

Global demand is expected to gradually recover in the second half of the year which should lead to an improvement in earnings driven by the component business. However, continued macroeconomic risks could prove to be a challenge in such recovery in demand.

The DS Division will focus on sales of high-value-added products such as DDR5, LPDDR5x and HBM amid expectations of a recovery in demand. It will continue to strengthen mid- to long-term competitiveness by increasing investments in infrastructure, R&D and packaging technology, while also enhancing the completeness of the Gate-All-Around (GAA) process.

SDC’s mobile panel business is expected to post improved earnings as major customers launch new smartphone models, while the large panel business will address year-end seasonal demand with a supply of ultra-large panels.

The DX Division plans to sustain solid profitability with new foldable smartphone and wearable launches and by increasing sales of premium TVs and digital appliances. The Networks Business aims to win new projects to grow revenue and reinforce technology leadership in 5G core chips and software-based virtualized Radio Access Networks (vRAN).

The Digital Appliances Business plans to expand the Bespoke lineup globally and increase sales of energy-efficient products featuring the Energy Savings Mode on SmartThings, while Harman is expected to improve profitability with higher sales of consumer audio products.

The Company’s total capital expenditures in the second quarter stood at KRW 14.5 trillion, including KRW 13.5 trillion for semiconductors and KRW 0.6 trillion for displays. Spending on memory was concentrated on completing the P3 infrastructure and the P4 framework for mid- to long-term supply. Foundry investments continued to focus on fabs in Taylor, Texas and Pyeongtaek, Korea to address the demand for advanced nodes, while investments in displays focused on infrastructure and module production enhancements.

Memory Business to See Improved Growth amid Stabilizing Market

The DS Division posted KRW 14.73 trillion in consolidated revenue and KRW 4.36 trillion in operating losses for the second quarter.

The Memory Business achieved its bit growth guidance even as it saw more limited price drops for both DRAM and NAND, which ultimately contributed to a quarter-on-quarter improvement in performance. As server customers continued inventory adjustment, overall purchase demand had not yet recovered. Due to the strong demand for generative AI, however, investment from the data center sector was concentrated on AI servers.

For DRAM, the Memory Business exceeded bit growth guidance by expanding sales on applications of consumer, graphics and automotive in addition to expanding sales focusing on servers, especially by actively responding to rising demand for DDR5 and HBM for generative AI applications.

As for NAND, the Memory Business actively responded to the demand for flagship smartphones with competitiveness in UFS 4.0 and also achieved bit growth guidance by increasing sales of gaming devices, branded products for retail and so on. Meanwhile, the price decline was considerably less than the previous quarter.

Looking to the second half of the year, the market is expected to gradually move toward stability considering increasing production cuts in the industry, while inventory adjustments by customers are likely to wind down.

In mobile and PC applications, with the normalization of major customers’ set inventory levels, Set-Build demand is expected to improve due to the launch of new smartphones and PC promotion in the second half of the year.

The server demand is expected to recover gradually and, in terms of products, demand for DDR4 and DDR5 is also expected to improve.

Based on supply flexibility linked to market conditions, the Memory Business will optimize its portfolio by focusing on high value-added and high-density products. In DRAM, to strengthen leadership in high-performance servers and mobile high-end segments, the Memory Business will rapidly increase the share of leading-edge products such as DDR5, LPDDR5x and HBM.

In the second quarter, the System LSI Business posted a lower-than-expected improvement in its earnings due to the delayed recovery of demand for semiconductors and customers’ continued inventory adjustments.

However, the System LSI Business won a design award for automotive SoCs with a domestic OEM for their 2025 premium model, and it also continued efforts to expand SoC applications including actively discussing mid- to long-term cooperation with European customers.

The System LSI Business expanded its applications to fingerprint authentication cards in the security business as well as Battery Management Systems (BMS) in the power management IC business.

In the second half of 2023, the recovery of demand for major applications such as mobile is likely to be delayed due to depressed consumer sentiment and lower-than-expected reopening efforts in China.

The System LSI Business is also seeking to resume supplying major customers by securing product performance for the flagship model and new business solutions aside from smartphones. For automotive SoC, it will continue focusing on winning orders from European OEMs in 2026.

The Foundry Business saw its revenue increase quarter-on-quarter in the second quarter thanks to increased sales to some US customers, but operating profit declined significantly as utilization decreased due to fab expansion and uncertainties in short-term demand.

The Foundry Business is smoothly mass producing its third product using GAA technology thanks to the stabilization of the 3-nanometer (nm) process, and the development of both the second generation of 3nm GAA technology and the 2nm GAA technology is on track and progressing well.

The Foundry Business successfully held the SFF/SAFE 2023 event in the US and Korea, introducing its process roadmap and various technological innovations. It launched the Multi-Die Integration Alliance with ecosystem partners.

In the second half of the year, although there are still considerable uncertainties, it expects demand to improve gradually.

The Foundry Business will lay the foundation for growth by advancing the development completeness of the 3nm GAA process with improved Power, Performance and Area (PPA) and by expanding orders from large customers.

It will keep striving to grow its product portfolio by continually developing mature processes, such as 8nm eMRAM, as well as 8-inch technologies for use in automotive applications.

SDC to Leverage New Technology to Build on Earnings

SDC posted KRW 6.48 trillion in consolidated revenue and KRW 0.84 trillion in operating profit for the second quarter.

For mobile panels, SDC achieved results similar to the previous quarter’s and thus maintained its market share by supplying OLED panels equipped with outstanding performance and technology.

For the large panel business, SDC has been improving its business fundamentals with enhanced yield and productivity, and it is also strengthening the premium position of its QD-OLED products with the product mix upgrade centered on ultra-large 77-inch TVs.

In the second half of the year, since SDC has several of its mobile panel customers due to release new products, it expects to see earnings improve. In particular, using its accumulated technological prowess in new areas such as HIAA and HOP, SDC aims to stay ahead of its competitors and seamlessly accommodate the mass production of new products from the customers.

For large panels, uncertainty over demand is likely to persist in the second half. SDC will collaborate with its customers to boost sales of ultra-large TVs, which are performing well. In addition, SDC acquired eMagin, a microdisplay manufacturer, in May. SDC will actively develop technology to lead the Extended Reality (XR) display market, which is expected to grow rapidly.

Mobile to Focus on New Foldable and Galaxy Ecosystem Devices in 2H

The Mobile eXperience (MX) and Networks businesses posted KRW 25.55 trillion in consolidated revenue and KRW 3.04 trillion in operating profit for the second quarter.

Overall market demand declined from the previous quarter due to continued macroeconomic factors, including high interest rates and inflation.

Sales decreased sequentially for the MX Business as the effect of the Galaxy S23 launch from Q1 faded. Mass market recovery was also delayed due to the continued economic downturn, affecting Q2 sales.

Nevertheless, the Galaxy S23 series was able to achieve higher results than its predecessor in the first half, in terms of both volume and value.

The MX Business’s efforts to optimize operational efficiencies throughout R&D, manufacturing, and logistics, underpinned by stabilized prices of major raw materials, led it to maintain a double-digit margin.

For the second half of 2023, the overall smartphone market is expected to return to year-on-year growth, especially in the premium market.

However, external forecasts for market growth have also been lowered, amid risks of a prolonged global economic downturn.

Regarding tablets, the overall market is expected to stay mostly flat, but the high-end segment is projected to increase.

The MX Business will focus on the newly launched Galaxy Z Flip 5 and Galaxy Z Fold 5 series – which feature refined and differentiated user experiences – further fortifying its leadership in the global foldable smartphone market.

For the Galaxy S23 and Galaxy A series, the MX Business plans to enhance sales through close collaboration with its partners and sales programs tailored by region.

The MX Business will also focus on boosting sales of its tablets and wearables, with a strong focus on its new high-end models, which were announced this week at the Galaxy Unpacked event.

Through such activities and initiatives, the MX Business intends to grow its annual revenue in 2023, while securing sold double-digit profitability through enhanced operational efficiency.

Visual Display and Digital Appliances to Maintain Robust Performance in 2H

The Visual Display and Digital Appliances businesses recorded KRW 14.39 trillion in consolidated revenue and KRW 0.74 trillion in operating profit for the second quarter.

Demand for TVs declined quarter-on-quarter due to seasonal spending trends, but the decrease in demand started to ease in comparison to the previous year. The Visual Display Business posted higher results year-on-year by focusing on sales of high-value-added products, such as Neo QLED/OLED/ultra-large TVs, and reducing overall costs.

In the second half of 2023, the Visual Display Business expects seasonal strength to ease the decline in overall TV demand amid continued uncertainties in the business environment, while the premium market is projected to remain robust.

The Visual Display Business will continue leading the industry through innovative products including 98-inch ultra-large screens, Micro LED lineups and the world’s first large-sized OLED gaming monitor and also through differentiated marketing related to areas highly valued by its consumers, such as the environment, security and content. Furthermore, it will leverage seasonal sales opportunities through compelling sales promotion strategies focusing on key products, including Neo QLED, OLED and Lifestyle.