Samsung Electronics' Last Year's Performance Declined Due to Semiconductor Downturn... Rebound Expected This Year (Comprehensive)

[Image source=Yonhap News]

[Asia Economy Reporter Changhwan Lee] Samsung Electronics' operating profit last year plummeted by more than 50% compared to the previous year, marking the lowest level in four years. The biggest cause was the decline in the semiconductor division's performance due to falling memory semiconductor prices.

Samsung Electronics announced on the 30th that it recorded sales of 230.52 trillion KRW and an operating profit of 27.76 trillion KRW last year. Compared to the previous year, sales decreased by 5.48% and operating profit by 52.84%, respectively.

This performance is the lowest in four years since recording an operating profit of 26.4 trillion KRW in 2015.

The biggest reason for the decline in performance is semiconductors. Samsung Electronics' semiconductor division recorded sales of 64.94 trillion KRW and an operating profit of 14 trillion KRW last year. In 2018, it achieved sales of 86.29 trillion KRW and an operating profit of 44.57 trillion KRW, which dropped by 25% and 69%, respectively.

Last year, the sharp drop in DRAM prices worsened semiconductor performance.

The display division also saw its operating profit decrease by about 40% to 1.58 trillion KRW last year, compared to 2.62 trillion KRW the previous year. This is interpreted as being affected by the decline in LCD prices and other factors.

The consumer electronics division's operating profit last year increased by about 30% to 2.61 trillion KRW, while the IT & Mobile (IM) division decreased by about 9% to 9.27 trillion KRW compared to the previous year.

However, the fourth-quarter performance exceeding expectations is positive.

Samsung Electronics' fourth-quarter sales last year were 59.88 trillion KRW, and operating profit was 7.16 trillion KRW. Sales increased by 1% year-on-year, while operating profit decreased by 33.7%.

The IM division's operating profit surged about 67% year-on-year to 2.52 trillion KRW. Performance improved due to expanded sales of flagship products and the reorganization of the Galaxy A series lineup compared to the same period last year.

The consumer electronics division's operating profit also increased by about 19% year-on-year to 810 billion KRW. Sales of premium TV products such as QLED and large-sized TVs expanded, along with strong sales of new lifestyle home appliances, and profitability improved for refrigerators and washing machines, boosting performance.

On the other hand, the semiconductor division's operating profit decreased by about 55% year-on-year to 3.45 trillion KRW. The impact of the DRAM price decline continued. However, the performance decline was evaluated as not as severe as market expectations. Some even say it has hit bottom.

◆ Semiconductor, smartphone, and other major businesses expected to rebound this year

Although Samsung Electronics' performance was sluggish last year, it is expected to rebound this year.

The company stated that in the semiconductor business, it plans to normalize memory inventory in the first half of the year and strengthen technological leadership.

System LSI plans to respond to market demand with differentiated products by expanding the adoption of 5G chips and high-pixel sensors. The foundry will continue to expand mass production of extreme ultraviolet (EUV) 5nm and 7nm processes and diversify customers, while strengthening technological competitiveness through the development of the 3nm gate-all-around (GAA) process.

In the display business, for small and medium-sized displays, it plans to strengthen leadership with differentiated technology and design and actively respond to new demand such as foldable displays. For large displays, amid continued oversupply, costs related to business structure transformation centered on QD displays are expected to cause weak performance.

The IM business will expand the 5G product lineup in wireless, launch foldable products with new designs focusing on premium product sales, and actively promote overseas 5G network business. The CE business emphasized plans to expand sales of premium products such as QLED 8K TVs, Micro LED, and Bespoke home appliances.

Last year's capital expenditure was about 26.9 trillion KRW. By business, semiconductor investment was about 22.6 trillion KRW, and display about 2.2 trillion KRW. Compared to 2018, semiconductor investment decreased as memory focused on process transitions last year, while foundry investment increased due to facility expansion for applying fine processes such as EUV 7nm.

In the display sector, investment decreased compared to 2018 as investment in the small and medium-sized A4 line was completed. This year's investment will be flexibly adjusted according to demand fluctuations.

For memory, infrastructure investment to respond to mid- to long-term demand will continue, and facility investment will be adjusted according to market recovery trends. Additionally, investments to strengthen mid- to long-term competitiveness in future growth businesses such as system semiconductors, displays, AI, and 5G will proceed as planned.