January 31, 2019 Korea: Reports quarterly operating profit of KRW 10.8 trillion on sales of KRW 59.27 trillion 2018 marks second straight year of record annual results, solidifies foundation for growth Weak chip demand to weigh on 1Q 2019, expects demand recovery in 2H
Samsung Electronics reported financial results for the fourth quarter ended December 31, 2018, and the fiscal year 2018. The Company posted KRW 59.27 trillion in consolidated quarterly revenue, down 10 percent from a year earlier, and KRW 10.8 trillion in quarterly operating profit, down 29 percent.
For 2018, Samsung reported KRW 243.77 trillion in revenue and KRW 58.89 trillion in operating profit. This marked a second straight year of setting record financial results, even as unfavorable business and macroeconomic factors led to slower performance in the final quarter. The year also saw many technology breakthroughs and innovations across its businesses, which solidified the foundation for future growth.
Fourth quarter earnings were affected by a drop in demand for memory chips used in data centers and smartphones. The System LSI and Foundry businesses also saw profits decline due to weak seasonality.
Overall earnings at the Display Panel Business decreased slightly due to growing competition between mobile display makers.
In the IT & Mobile Communications (IM) Division, smartphone shipments and prices fell in the fourth quarter in a stagnant but highly competitive market, despite strong seasonal demand. However, the Networks Business reported gains on the back of 5G equipment installations and expansion of LTE networks.
Quarterly earnings increased in the Consumer Electronics (CE) Division, led by strong sales of premium TVs, such as QLED TVs.
Looking ahead, Samsung expects demand in the Memory Business to remain weak in the first quarter due to seasonality and macroeconomic uncertainties as well as inventory adjustments by major customers. For OLED, profitability is likely to decline, weighed on by slow sales of premium smartphones and rising competition with LTPS LCD products. As for LCD, earnings are expected to decline as a result of large-scale capacity expansions in the industry.
Earnings in the IM Division are likely to improve in the first quarter, helped by the planned launch of the new flagship Galaxy smartphone and the introduction of commercial 5G telecom services in Korea. The CE Division will unveil new TV models and focus on premium home appliances, in order to prioritize profitability in a slower season.
For 2019, the Company expects overall annual earnings to decline due to weaker performance by the Memory Business. Demand for memory products and OLED panels is expected to pick up from the second half.
Under its commitment to achieving sustainable growth over the mid- and long-term, Samsung will focus on enhancing its existing leadership and developing new growth areas. The Company plans to boost R&D activities, expand external technology collaboration and actively invest in strengthening core capabilities.
In the component business, Samsung will continue to improve its technology lead and offer new solutions to meet increasing demand for automotive and AI chipsets. The Company also aims to bring new innovation to OLED screens for smartphones and develop new applications.
Samsung is offering new product innovations this year including foldable smartphones and MicroLED TVs. In AI, an enhanced Bixby will enable greater connectivity and build an AI-powered services platform to support more devices and applications. In 5G, Samsung is set to bolster its position in the market by providing solutions across network equipment, devices and chipsets.
In 2018, Samsung Electronics’ capital expenditure was KRW 29.4 trillion, with KRW 23.7 trillion allocated to semiconductors and KRW 2.9 trillion to displays. In the Memory Business, capex increased slightly YoY due to expansion at the Pyeongtaek campus. Capex in the Foundry Business, however, returned to levels seen in prior years as the 10nm line expansion was completed in 2017. Capex for flexible OLED panels was significantly lower than it was in the previous year.
Mobile Business Seeks Growth From New Flagship Smartphones
The IT & Mobile Communications Division (IM) posted KRW 23.32 trillion in consolidated revenue and KRW 1.51 trillion in operating profit for the fourth quarter of 2018.
In Q4, operating profit decreased QoQ due to a decline in both smartphone sales volume and revenue amid a sluggish smartphone market overall despite strong seasonal demand.
Looking ahead to the first quarter, demand for smartphones and tablet PCs is projected to decline due to the seasonal slowdown in the market. Samsung will unveil the Galaxy S10 next month at the Unpacked event in San Francisco and its new flagship model smartphones are expected to prop up sales and business performance in the coming months.
However, overall smartphone shipments are likely to remain at a similar level QoQ as shipments of the Company’s mass-market models have temporarily declined due to a lineup reorganization. This reorganization is being carried out to better promptly respond to rapid changing market trends and the needs of target customers.
For the whole of 2019, demand for smartphones is expected to maintain the same level seen in 2018 while market ASP is projected to rise due to a trend toward adopting high-end features such as large screens, higher memory capacity, and multi-cameras. The environment overall will remain challenging due to the sluggish growth of the global smartphone market and material cost burden.
Acknowledging the hurdles ahead, Samsung plans to boost smartphone sales and achieve solid business performance in 2019 by launching differentiated products and bolstering target marketing strategies.
This year, Samsung aims to lead trends in the market by launching foldable and 5G devices in efforts to ensure sustainable growth. By cooperating with business partners, Samsung will secure optimized content and expand into new markets. User retention will be increased by strengthening connectivity between devices. As part of this plan, Samsung will expand Bixby to various devices and connected services while improving its AI capabilities.
For the Networks Business, performance improved in sequential terms in the fourth quarter on the back of LTE network expansions by Samsung’s major overseas customers and as Samsung began to supply 5G network equipment to the United States and South Korea. This year, Samsung will expand its equipment supply for the first markets for 5G in South Korea and the United States, laying the foundation for global growth.
Consumer Electronics to Focus on Premium Products
The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses, recorded KRW 11.79 trillion in consolidated revenue and KRW 0.68 trillion in operating profit for the fourth quarter.
In the fourth quarter, the global TV market grew by double-digits QoQ thanks to the year-end peak season, but slower demand in emerging markets limited growth YoY.
Earnings for the Visual Display Business improved both QoQ and YoY thanks to increased sales of QLED and ultra-large-sized TVs backed by successful year-end promotions and product mix improvement. In particular, sales of QLED TVs nearly tripled YoY, with QLED 8K TV and super-large-screen TVs of 75 inches and above solidifying leadership in the premium TV market.
The TV market in the first quarter is forecast to slightly weaken under slow seasonal demand. Samsung will continue to strengthen its sales of QLED and super-large-screen TVs and release new QLED 8K TV to the global market in full scale.
The TV market in 2019 is projected to be similar to last year despite negative factors including a lack of global sports events and economic slowdowns in emerging markets. The Company will aim to secure profitability and growth by expanding the premium lineup including QLED 8K TVs, super-large-screen TVs, and MicroLED products.
For the Digital Appliance Business in the fourth quarter, the growth in demand has slowed due to the sluggish US housing market and higher prices driven by foreign exchange fluctuations. Under these circumstances, earnings saw slight improvement both QoQ and YoY through strong sales of premium products such as Family Hub refrigerators, large-capacity dryers and Cube air purifiers.
In the first quarter, Samsung will expand its sales of new home appliances including AirDresser (garment air refreshers) and dryers, while boosting B2B business through built-in home appliances and system air conditioners.
Looking ahead to 2019, the digital appliances market is expected to slightly grow in advanced markets. Samsung will aim to secure future growth by increasing sales of premium products and strengthening online and B2B businesses. says release.
