On the 29th, when Samsung Electronics announced its confirmed third-quarter earnings, employees were coming and going at the Samsung Electronics building in Seocho-gu, Seoul. Despite the resurgence of the novel coronavirus (COVID-19), Samsung Electronics achieved a record high with third-quarter sales approaching 67 trillion won this year. Operating profit also exceeded 10 trillion won for the first time in two years. The third-quarter operating profit was 12.3533 trillion won, an increase of 58.83% compared to the same period last year. Photo by Kim Hyun-min kimhyun81@
[Asia Economy Reporters Changhwan Lee, Jinju Han, Dongwoo Lee] Samsung Electronics' surprise third-quarter earnings were largely driven by pent-up demand caused by the COVID-19 pandemic, which significantly boosted sales in set businesses such as mobile and home appliances. The company's core semiconductor division also exceeded expectations thanks to increased mobile demand and expanded sales to Huawei.
On the 29th, Samsung Electronics announced that its consolidated third-quarter results showed sales of KRW 66.9642 trillion and operating profit of KRW 12.3533 trillion, representing increases of 8.0% and 58.8% respectively compared to the same period last year.
Sales surpassed the previous quarterly record of KRW 65.98 trillion set in 2017, and operating profit exceeding KRW 10 trillion occurred for the first time in seven quarters since Q4 2018 (KRW 10.8 trillion).
The most notable improvement was in the IM (IT & Mobile) division, responsible for smartphones. Third-quarter IM division sales reached KRW 30.49 trillion, with operating profit at KRW 4.45 trillion. While sales increased by 4.24% year-on-year, operating profit surged by 52.40%.
Sales of flagship models such as the Galaxy Note20 and Galaxy Z Fold2 rose by 50% compared to the previous quarter, driving third-quarter performance. Increased sales of tablets like the Galaxy Tab S7 and wearables such as the Galaxy Watch3 and Galaxy Buds Live also contributed to profit growth. Smartphone shipments for Q3 are estimated at 80 million units, with tablet shipments at 10 million units.
Kim Kyung-min, a researcher at Hana Financial Investment, explained, "Shipments increased mainly in mid- to low-end models, improving profitability, and the higher volume led to better profit margins compared to before. The expansion of online channel sales also contributed to profitability improvement."
The semiconductor division also delivered results beyond expectations. Operating profit for the semiconductor business in Q3 was KRW 5.54 trillion, up approximately 82% year-on-year. Sales increased by 7% to KRW 18.8 trillion. Although server demand, which had driven past performance, weakened, the division actively responded to increased mobile and PC demand due to COVID-19 and expanded sales of SSDs (solid-state drives) for new gaming consoles, improving results.
It is also analyzed that increased orders from Huawei had an impact. Huawei reportedly made concentrated purchases of Samsung's semiconductors from late August to early September, before U.S. sanctions began. Recently, significant new orders in the foundry (semiconductor contract manufacturing) sector have also contributed to defending earnings.
The Display (DP) division recorded sales of KRW 7.32 trillion and operating profit of KRW 470 billion without one-time gains (compensation). Recent price increases in displays and higher sales of TVs and smartphones acted as positive factors.
The CE (Consumer Electronics) division, responsible for TVs and home appliances, also saw operating profit in Q3 improve 200% to KRW 1.56 trillion from KRW 520 billion in the same period last year. Sales during the same period rose 27% from KRW 11 trillion to KRW 14 trillion. Demand in the TV and home appliance markets surged significantly due to economic stimulus effects in various countries and rebound consumption mainly in key nations.
TV sales sharply increased by actively responding to the growing demand for TV replacements and marketing premium products such as QLED and large-sized TVs aligned with recent consumer trends. Home appliances saw significant growth in premium products like the Bespoke refrigerator and Grande AI. Interest in hygiene appliances rose due to COVID-19, with increased sales of dryers and Air Dressers contributing to improved performance.
On the 29th, when Samsung Electronics announced its confirmed third-quarter earnings, the Samsung Electronics building in Seocho-gu, Seoul. Despite the resurgence of the novel coronavirus (COVID-19), Samsung Electronics achieved a record high with third-quarter sales approaching 67 trillion won this year. Operating profit also exceeded 10 trillion won for the first time in two years. The third-quarter operating profit was 12.3533 trillion won, an increase of 58.83% compared to the same period last year. Photo by Kim Hyun-min kimhyun81@
◆Expectations of Earnings Slowdown in Q4 Due to COVID-19 Resurgence and US-China Trade Disputes
In the fourth quarter, earnings are expected to slow down compared to Q3, mainly in semiconductors. Since the U.S. sanctions against Huawei intensified after the 15th of last month, semiconductor supply to Huawei, one of Samsung's top five customers, has been halted. Additionally, a decline in server DRAM prices is expected to continue through Q4.
A company official stated, "In Q4, overall profitability is expected to decline due to continued weak demand for server memory and intensified competition in the set business. Especially in semiconductors, profitability may decrease due to weak server prices caused by customer inventory adjustments and initial costs for new production lines."
Concerns are growing over the rapidly worsening global economic situation as COVID-19 resurges mainly in Europe and the U.S., leading to renewed lockdowns. Market lockdowns could again deteriorate demand for sets such as mobile devices and home appliances. Marketing expenses for set products like mobile devices are also expected to increase in Q4 due to new product launches by competitors such as Apple.
Lee Seung-woo, a researcher at Eugene Investment & Securities, said, "Q4 earnings are expected to weaken compared to Q3 due to factors such as the decline in the won-dollar exchange rate, reduced semiconductor sales to Huawei, and an adjustment process following the sharp increase in set shipments in Q3."
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