Overcoming COVID-19... Samsung and LG Electronics Surprise with Q1 Earnings (Comprehensive Report 2)

Samsung Electronics Q1 Operating Profit 6.4 Trillion KRW, Semiconductor Business Performs Well Analysis
LG Electronics Q1 Operating Profit 1.09 Trillion KRW, Earnings Surprise Greatly Exceeds Market Expectations

[Asia Economy Reporter Changhwan Lee] South Korea's leading IT companies Samsung Electronics and LG Electronics announced first-quarter earnings that exceeded expectations. Both companies overturned market forecasts that predicted poor first-quarter results due to the impact of the novel coronavirus disease (COVID-19). Samsung Electronics' core semiconductor business led the earnings improvement, while LG Electronics' home appliances drove the performance boost.

◆Samsung Electronics Smiles Thanks to Semiconductors, but Concerns Remain for Smartphones and Displays= On the 7th, Samsung Electronics announced consolidated first-quarter sales of 55 trillion KRW and operating profit of 6.4 trillion KRW. Compared to the same period last year, sales increased by 4.98% and operating profit rose by 2.73%.

Before Samsung Electronics' first-quarter earnings announcement, the provisional consensus for Samsung's first-quarter operating profit from the financial investment industry was around 6.09 trillion KRW. However, on the 7th, Samsung Electronics reported earnings that exceeded this by 310 billion KRW, posting 6.4 trillion KRW.

The operating profit surpassing expectations is attributed to strong performance from the DS (Device Solutions) semiconductor division. Typically, Samsung Electronics' semiconductor division accounts for more than half of the total operating profit. Despite COVID-19, memory semiconductor prices have steadily risen this year.

According to market research firm DRAMeXchange, the fixed transaction price of DDR4 8-gigabit (Gb) DRAM products, mainly used in PCs, averaged $2.94 in March, up 2.1% from February.

The fixed price of DDR4 8Gb DRAM rebounded to $2.84 in January after 13 months, then rose to $2.88 in February, continuing an upward trend for three consecutive months through March. The rate of increase expanded from around 1% in February to 2% in March.

The increase in semiconductor demand is due to the virus spread leading to more remote work and online activities, as well as increased semiconductor inventory accumulation by server and PC manufacturers. Supply is limited, and with rising demand, product prices have increased.

With semiconductor prices rising and favorable exchange rate effects, Samsung Electronics' DS division's first-quarter operating profit is estimated to have reached between 3.8 trillion KRW and 3.9 trillion KRW, an increase of over 10% compared to the previous quarter's 3.44 trillion KRW.

Dongwon Kim, a researcher at KB Securities, explained, "Due to COVID-19, remote work and video conferencing have increased, leading to higher internet data traffic and demand for new server expansions," adding, "Semiconductor demand is rising while supply remains limited, causing semiconductor prices to increase."

However, excluding semiconductors, other divisions are estimated to have experienced declines. In particular, the smartphone business is believed to have been sluggish. The financial investment sector reports that sales of the Galaxy S20, released last month by Samsung Electronics, are significantly lower than its predecessor, the Galaxy S10.

Consumer sentiment has frozen, and the CE (Consumer Electronics) division's performance is also expected to have declined. The postponement of major sporting events such as the Tokyo Olympics and Euro 2020 due to COVID-19 has inevitably led to decreased TV sales.

With reduced smartphone and TV sales, the display business also suffered. A significant portion of display earnings comes from Samsung Electronics' smartphone OLED (organic light-emitting diode) and TV panels, and with weak product demand, it is estimated to have turned to a loss.

◆Sterilizing Home Appliances Gain Explosive Popularity Thanks to COVID-19, LG Electronics Posts Surprise First-Quarter Earnings= LG Electronics also announced surprise first-quarter earnings that greatly exceeded market expectations.

On this day, LG Electronics reported consolidated sales of 14.7287 trillion KRW and operating profit of 1.0904 trillion KRW. Compared to the same period last year, sales decreased by 1.2%, but operating profit increased by 21.1%.

This is a surprise earnings result (earning surprise) that significantly surpasses the average operating profit forecast (consensus) of 870 billion KRW presented by securities firms over the past month. LG Electronics' operating profit exceeding 1 trillion KRW is the first time in two years since the first quarter of 2018.

It is evaluated that home appliances with sterilizing functions such as stylers, air purifiers, air conditioners, and dishwashers performed better than expected due to COVID-19.

In particular, sales of stylers in February increased by more than 30% compared to the same period last year. Sales of air purifiers and dishwashers also reportedly increased significantly compared to the previous year.