Samsung Electronics today announced revenues of KRW 36.99 trillion (US$34.66 billion) on a consolidated basis for the first quarter ended March 31, 2011, a 7% increase year-on-year. For the quarter, the company posted consolidated net income of KRW2.78 trillion, representing a 30% decrease year-on-year. Consolidated operating profit for the quarter was KRW2.95 trillion.
In its earnings guidance disclosed on April 7, Samsung estimated first-quarter consolidated revenues would reach approximately KRW37 trillion with an operating profit of KRW2.9 trillion.
By business, Telecom, Semiconductor and Digital Media & Appliances drove revenue growth in the quarter. The Semiconductor Business saw sales jump 12% year-on-year thanks to stronger demand for NAND products used in smartphones and tablet PCs, while the Telecom segment continued to perform strongly with sales reaching KRW10.64 trillion.
However, Samsung's overall net profit declined after the strong first quarter performance in 2010, weighed down by lower semiconductor memory prices and reduced profitability in LCD panels and TV sets.
"A difficult business environment remained in the first quarter, due to rising costs of raw materials, uncertainties in the financial market in Europe, and the devastating earthquake in Japan," said Robert Yi, vice president and head of Samsung Electronics' Investor Relations Team. "But we will actively respond to such challenges by enhancing cost competitiveness in memory products through geometry migration, launching new smartphones and tablet PCs, as well as increasing the sales focus on premium LCD panels and TVs."
Samsung forecasts that the challenging business conditions will persist in the second quarter, affected by lingering worries over the global economy and tight competition in consumer electronics and mobile businesses.
The impact on earnings from volatility in foreign exchange was minimal, as the fluctuation of the Korean won against the US dollar and the euro was less than 1%. With regards to concerns over disruptions to the supply chain after the March 11 earthquake in Japan, Samsung expects the impact on its businesses to be relatively limited.
Samsung's previously announced capital expenditure for 2011 of KRW23 trillion is being executed as planned. During the first quarter, capex was KRW5.5 trillion or 24% of the annual plan, which could be increased depending on market conditions.
Weak Memory Demand
Samsung's Semiconductor Business recorded a consolidated operating profit of KRW1.64 trillion in the first quarter, down from the KRW1.96 trillion registered a year ago. Revenues reached KRW9.18 trillion, a 12% increase year-on-year.
The Memory Division posted KRW5.87 trillion in revenues for the quarter, a 5% bump up from a year earlier. Weak demand for PCs compounded by seasonal factors slowed sales of PC DRAM in the quarter, but orders for server DRAM and high-density memory used in smartphones and tablet PCs remained strong. Samsung sought to maintain profit margins by strengthening cost competitiveness through increased sales of 30nm-class DRAM and accelerated migration of 20nm-class processes in the NAND segment.
Sales for the System LSI Division doubled to KRW2.32 trillion on-year, on the back of rising demand for smartphone application processors and image sensors. Mass production of dual-core processors following the launch of Samsung's own Exynos brand is expected to further cement Samsung's leading position in the mobile application processor segment.
In the second quarter, business conditions in the key DRAM segment are expected to improve slightly. Increased demand for NAND and System LSI products will also sustain growth momentum, as smartphone and tablet PC makers introduce new models.
Display Panel Shipments Decline on Weak Seasonality
The Display Panel Business recorded an operating loss of KRW230 billion on revenues of KRW6.51 trillion, representing a 5% sales dip on the same period last year.
Overall market shipments of LCD panels declined 8% quarter-on-quarter due to weak seasonality, set-makers' conservative inventory management and slower sales in China. For Samsung, total panel shipments also decreased quarter-on-quarter, but were up by around 10% compared with the first quarter of 2010. Highlights included increased shipments of high-end LED panels and strong sales of tablet displays, which saw growth in the high 30% range.
Samsung forecasts that demand for LCD panels will begin to gather momentum in the latter part of the second quarter, as set-makers restock inventory for the peak sales season ahead. The business will focus on securing profitability through emphasis on differentiated products and enhanced manufacturing line efficiency.
Smartphone Sales Boost Telecom Profit
The Telecommunications businesses - including mobile communications and telecommunication networks - posted an operating profit of KRW1.43 trillion on revenues of KRW10.64 trillion. The businesses maintained an operating profit margin of 13.5% for the quarter.
Samsung sold a total of 70 million mobile handsets during the quarter, down 14% year-on-year. However, strong sales of smartphones and high-end mobile devices helped to increase Samsung's average sales price and boost operating profit. Smartphones made up 18% of Samsung's total handset unit sales for the quarter, up from 4% during the same period last year.
In the second quarter, Samsung expects the industry to see single-digit growth in mobile handset demand quarter-on-quarter. The company aims to continue to outperform the market by launching of a range of devices to meet diverse market needs. Continuing its momentum in the smartphone market, Samsung is introducing the new GALAXY SII during the second quarter, with the device slated to be rolled out by 140 mobile service providers in 120 countries. Samsung will also expand its tablet portfolio with the introduction of the GALAXY Tab 10.1, the thinnest, lightest device available on the market.
The Telecommunications Systems Business continues to focus on 4G infrastructure solutions, particularly the Long Term Evolution (LTE) market. Samsung aims to expand this business in Asia and North America, where LTE commercialization is accelerating.
Digital Media & Appliances Returns to Profit
Operating profit for Digital Media & Appliances Business turned around from the previous quarter to register KRW0.10 trillion on revenues of KRW13.52 trillion in the first quarter.
Amid weak seasonality, Samsung's overall shipments of flat panel TVs fell 31% to 8.8 million units from the previous quarter. Profit was driven by increased sales of LED TVs, which now make up 39% of TV sales.
In emerging markets, LED TV segment sales grew 420% year-on-year. For the remainder of 2011, sales of flat panel TVs are expected to remain slow in advanced countries, with emerging markets forecast to take up 55% of total demand by year end.
As for digital appliances, emerging market growth and brisk sales of premium refrigerators, washing machines and air conditioners in Europe drove up revenue by 13%compared with the same period last year. Samsung will continue focusing on the launch of new premium and eco-friendly products, while enhancing global production efficiency.