Electronics Companies Face Second Quarter Slump, Improvement Expected from Third Quarter

An employee is inspecting displayed air conditioners at a large electronics store in Yongsan-gu, Seoul. (File photo) / Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Changhwan Lee] Due to the impact of the novel coronavirus infection (COVID-19), the second-quarter performance of domestic electronics companies such as Samsung Electronics and LG Electronics is expected to be significantly worse than last year. Although semiconductor and some home appliances continue to see strong sales, the sharp decline in demand for key electronic products such as smartphones and TVs is expected to drag down overall performance. However, it is anticipated that a full-scale recovery in performance will be possible starting from the third quarter as the impact of COVID-19 diminishes.

According to the electronics industry on the 28th, Samsung Electronics will announce its preliminary second-quarter results in early next month. According to FnGuide, the financial investment industry consensus estimates Samsung Electronics' second-quarter revenue at 50.3 trillion KRW and operating profit at 6.1 trillion KRW. This represents a 10.3% decrease in revenue and a 7.1% decrease in operating profit compared to the previous year.

Due to the significant contraction in consumption caused by COVID-19, it is estimated that smartphones and TVs performed poorly. The industry expects Samsung Electronics' smartphone sales volume in the second quarter to have dropped by around 30% compared to the same period last year. Accordingly, the operating profit of the IM (IT & Mobile) division, which handles smartphones, is expected to plummet by 58% year-on-year to around 1.1 trillion KRW.

The display division is also expected to perform poorly due to the decline in smartphone sales, and TV sales are projected to have decreased due to reduced consumer spending.

However, the semiconductor division is expected to deliver solid results in the second quarter following the first quarter. This is due to increased sales of semiconductors for data centers driven by the expansion of non-face-to-face (untact) demand, as well as rising prices for memory semiconductors such as DRAM and NAND flash.

KB Securities predicted that Samsung Electronics' semiconductor operating profit in the second quarter will be 5.2 trillion KRW, up 53% year-on-year and 30.1% quarter-on-quarter. The increase in demand for server DRAM and solid-state drives (SSD) has raised the average selling price (ASP), leading to continued performance improvement.

The slump in smartphone sales is also expected to affect affiliates such as Samsung SDI. Samsung SDI's expected second-quarter revenue is 2.4 trillion KRW, with an operating profit of 55 billion KRW. Operating profit is forecasted to decrease by 64% year-on-year, reflecting the deterioration of the battery business due to weak smartphone sales.

LG Electronics' expected second-quarter revenue is 13.2 trillion KRW, with operating profit around 400 billion KRW. These figures represent decreases of 15% and 38%, respectively, compared to the previous year. The TV division and Vehicle Components (VS) division are expected to perform poorly due to COVID-19, and the MC (Mobile Communications) division, responsible for smartphones, is also expected to continue its poor performance.

However, strong sales of major home appliances such as dryers, washing machines, stylers, and dishwashers are expected to sustain good performance in the Home Appliance & Air Solution (H&A) division.

LG Display, which is struggling with OLED production issues at its Guangzhou plant in China, is also expected to continue posting losses in the second quarter. The expected operating loss for the second quarter is around 400 billion KRW, estimated to increase compared to the first quarter. It is analyzed that the TV and mobile display divisions were negatively affected by COVID-19.

Although most electronics companies are expected to report poor second-quarter results, there is a high possibility of improvement starting from the third quarter as the impact of COVID-19 lessens and consumption is likely to recover.

In particular, if the smartphone business recovers, Samsung Electronics' performance improvement is expected to be prominent. Gyu-jin Uh, a researcher at DB Financial Investment, said, "With the recent reopening of the global economy, IT demand recovery in the second half of the year is anticipated. This raises expectations for a rebound in the performance of Samsung Electronics' globally leading products such as smartphones, TVs, and OLED panels, which were sluggish in the first half."

LG Electronics is also expected to improve its performance in the second half due to continued strong sales of home appliances, increased TV sales, and reduced losses in the VS division.