Samsung Electronics reported financial results for the second quarter ended June 30, 2022. The Company posted consolidated revenue of KRW 77.2 trillion, a record for the second-quarter, and operating profit of KRW 14.1 trillion, a 12% increase from a year earlier.
The DS (Device Solutions) Division reported a historical high in quarterly revenue for the second consecutive quarter while the DX (Device eXperience) Division posted a significant year-on-year revenue growth.
Earnings in the Memory Business improved both year-on-year and quarter-on-quarter as the Company focused on meeting solid demand for servers under the disciplined sales strategy to meet market demand, helping to maintain average selling prices. The system semiconductor businesses (System LSI and Foundry Businesses combined) achieved a record high quarterly profit as System LSI expanded its product lineup while Foundry hit the Company’s targeted yield trajectory for advanced nodes as it increased supply to global customers.
SDC (Samsung Display Corporation) saw record second-quarter revenue and operating profit for mobile displays driven by solid demand from major customers. Performance in the large panel business was weaker due to initial ramp-up costs of quantum-dot (QD) displays and a decline in LCD prices.
The MX (Mobile eXperience) Business posted a sequential decline in earnings as material and logistics costs rose, but revenue increased from a year earlier driven by sales of premium models. The Networks Business saw an increase in revenue from the previous quarter and added DISH Network as a customer.
Earnings in the Visual Display Business declined due to weak global TV demand while the Digital Appliances Business posted a record high quarterly revenue for the second straight quarter as sales of Bespoke products expanded globally.
The strength in the US dollar against the Korean won benefited the Company’s component businesses, resulting in an approximately 1.3 trillion won company-wide gain in operating profit compared to the previous quarter.
In the second half, with macroeconomic uncertainties expected to persist, the DS Division will focus on managing a portfolio of high-value-added products and expanding advanced nodes and new applications. The DX Division will continue to reinforce leadership and product lineup in the premium segment.
In the Memory Business, server demand is expected to remain solid while PC and mobile demand is likely to see continued weakness. The Company will closely monitor the demand impact from various factors, such as new mobile product launches and focus on high-value-added and high-density product portfolio management.
The System LSI Business plans to expand the SoC business and strengthen the leadership position in image sensors. For the Foundry Business, the Company aims to exceed market growth by adding new global clients while continuing to reinforce technological competitiveness through the development of the 2nd generation GAA process.
For SDC, earnings in the mobile panel business is expected to increase, driven by new smartphone launches and expansion into new application areas such as automotive and gaming. Earnings in the large display business is expected to improve as demand increases for QD displays.
The MX Business expects to post solid profitability with foldable products becoming mainstream as the Company targets foldable sales to surpass that of the Galaxy Note series. For the Networks Business, the Company plans to maintain momentum in revenue growth by expanding overseas businesses.
In the Visual Display Business, the Company will capture demand in the premium segment by boosting sales of strategic products, such as Neo QLED, Super Big and Lifestyle TVs. The Digital Appliances Business will focus on improving profitability by increasing sales of premium products.
The Company’s capital expenditures in the second quarter was KRW 12.3 trillion, including KRW 10.9 trillion spent in the DS Division and KRW 0.8 trillion in SDC. Similar to the first quarter, spending on memory was concentrated on infrastructure at P3 and on process migrations at fabs in Hwaseong, Pyeongtaek and Xi’an. Investments in the Foundry Business focused on increasing production capacity of under 5-nanometer advanced processes.
Semiconductor Quarterly Revenue All-time High
The DS Division posted KRW 28.5 trillion in consolidated revenue and KRW 9.98 trillion in operating profit in the second quarter.
The Memory Business’s performance improved both year-on-year and quarter-on-quarter as ASP stayed at a better-than-expected level thanks to the disciplined sales strategy to meet market demand and the benefits of a strong dollar. Although server demand remained solid, demand for consumer products such as mobile weakened due to widening impacts of macro issues, resulting in DRAM and NAND shipments to come in below bit growth guidance.
For DRAM, the Company achieved the highest sales of server products in the industry for any quarter by optimizing its portfolio and actively responding to solid demand centering on servers but missed guidance for total bit growth due to weak demand for consumer products such as PCs and mobile devices.
As for NAND, Samsung continued to expand the proportion of high-density products of 512Gb and higher for server SSD and actively responded to the high-density trend in client SSD and mobile to maintain a favorable ASP. But the overall bit growth came in below guidance as mobile demand was much weaker than expected.
Looking to the second half of the year, fundamental demand for server will stay solid as the investments in core infrastructure and new growth areas such as AI and 5G are expected to keep expanding, centering on major datacenter companies. Customers may possibly adjust inventory level temporarily amid some IC components supply problems as well as a concern over widespread economic recession and geopolitical issues.
Demand for consumer products like PC and mobile is likely to stay weak. For PC, there is a possibility that the slump in demand may expand to enterprise segments. Nevertheless, there are also chances of consumer demand getting stimulated during the year-end promotional season.
Amid the highly volatile market situation, the Company plans to maintain its stance of operating an optimized portfolio that centers on high-density and high-value-added solutions, based on supply flexibility in accordance with market conditions and customer needs.
For DRAM, Samsung will keep staying disciplined against excessive sales expansion and flexibly managing supply in line with demand.
For NAND, the Company will focus on creating demand mainly for high-density products while considering characteristics of high price elasticity and will continue to strengthen its market leadership by actively responding to demand based on its excellent cost competitiveness.
The System LSI Business saw its earnings improve quarter-on-quarter due to a growing supply of DDIs, volume-zone SoCs and positive effects of foreign exchange movements. Samsung further solidified its leadership in image sensor through the world’s first supply of 200-Mega pixel sensors and secured US customers in addition to Europe in automotive SoC business.
In the second half, the Company aims to exceed revenue and profitability growth by expanding its lineup of 5G SoCs and expand its customer base to maximize supply of its 200M pixel image sensors.
The Foundry Business achieved its highest ever second quarter revenue thanks to yield improvement, solid demand for advanced processes centering on HPC and stable demand in matured processes from various applications. It also achieved its highest second quarter profit. In addition, it has strengthened technological competitiveness through the world’s first mass production of the 3-nanometer GAA process, accomplished in June.
In the second half, the Company maintains its view that HPC and 5G-related demand will remain solid despite uncertainties related to geopolitical issues and inflation. Through close cooperation with customers, Samsung aims to exceed market growth through yield improvement of advanced processes alongside a proper pricing strategy.
In addition, the Company plans to advance the completion of second-gen GAA process development and expand customer base for large-scale orders. In October, offline forums will take place in US, Europe, Japan and Korea to further strengthen customer networking.
SDC Earnings To Improve With New Product Launches in 2H
SDC posted KRW 7.71 trillion in consolidated revenue and KRW 1.06 trillion in operating profit for the second quarter.
Mobile display earnings improved from a year earlier despite a slowdown in smartphone demand, led by strong sales for flagship smartphone models and positive effects of foreign exchange movements. Growing adoption of OLED displays in laptops and gaming devices also contributed to the results.
For large displays, a decline in LCD ASP and initial costs of QD display development caused continued loss. However, Samsung expects sales and profit margin to increase in earnest from the second half of 2022, driven by rapid improvements in the QD display yield and a rising number of brands adopting QD display products.
Looking ahead to the second half of this year, for the smartphone market, the Company forecasts earnings to grow compared to 1H as new products are due to be released by major customers. However, earnings are likely to be more volatile than last year due to a number of difficult-to-predict external factors. Samsung expects sales of its OLED panels to continue to expand, given the high proportion of premium lineup, which is relatively unaffected by economic fluctuations.
For laptops, although the market is expected to shrink, the Company forecasts sales volume of its OLED displays to keep growing, led by strong consumer preference for displays featuring high resolution and a fast response time.
For large displays, new TVs and monitors equipped with QD display are scheduled to roll out globally. Samsung will actively promote the excellence of QD displays to consumers through joint promotions with its customers, aiming to lead the premium market.
Mobile Business To Focus on Flagship Sales and Multi-Device Experiences in 2H
The MX and Networks businesses posted KRW 29.34 trillion in consolidated revenue and KRW 2.62 trillion in operating profit for the second quarter.
Overall market demand declined from the previous quarter amid geopolitical issues and concerns over inflation on top of continued weak seasonality. Profitability decreased from the previous quarter at some degree due to rising costs of components and logistics as well as negative effects of foreign exchange movements.
However, supply disruptions in the first quarter were mostly resolved in the second quarter and Samsung secured its revenue growth year-on-year with solid sales of flagship models such as Galaxy S22 series and Galaxy Tab S8 series.
For the second half, smartphone market demand is forecast to stay similar year-on-year or show single-digit growth with prolonged geopolitical issues and economic uncertainties. However, the Company aims to expand flagship sales by successfully launching new foldable models, driving the mainstreaming of the foldable products as a key category in the premium segment with better customer experiences through collaboration with global partners.
While the global smartwatch market is likely affected by economic uncertainties in the short term, Samsung will continue to maintain high growth momentum with the release of new watch models, expanding Galaxy Ecosystem devices.
Moreover, the Company plans to provide a richer, multi-device experience based on SmartThings by introducing various everyday scenarios customized to individual life patterns. Although market uncertainties are forecast to persist for some time, the Company will strive to maintain double-digit profitability by improving its product mix centered on flagship products through mainstreaming foldable lineup and by continually enhancing operational efficiency.
Strong Focus on Premium Products Amid Continued Macro Uncertainties
The Visual Display and Digital Appliances businesses posted KRW 14.83 trillion in consolidated revenue and KRW 0.36 trillion in operating profit in the second quarter.
In the second quarter, market demand for TVs decreased both quarter-on-quarter and year-on-year, the former due to weak seasonality and the latter due to the previous year’s high baseline buoyed by pent-up demand. Consumer demand was also affected by macroeconomic factors such as inflation and high interest rates, resulting in lower quarterly revenue and profit for the Company.
However, Samsung was able to maintain its premium leadership in the market with expanded sales of strategic products, including Neo QLED and Lifestyle TVs.
In the second half, while opportunities such as peak seasonality and global sporting events are expected, macro risks are also expected to continue, casting uncertainties on overall market demand.
Samsung will closely monitor rapidly changing market conditions and achieve solid profitability by further expanding strategic product sales. It will also work with its channel partners through strategic partnerships and actively target the Signage market where B2B demand has been recently revived. The Company will also focus on solidifying its market leadership with innovative products such as Micro LED and Odyssey Ark.