Samsung and LG Electronics Achieve Strong Performance, What Is the Outlook for Q4?

Citizens are passing by in front of the Samsung Electronics PR Center in Seocho-gu, Seoul, on the 29th, the day Samsung Electronics announced its confirmed third-quarter earnings. Despite the resurgence of the novel coronavirus (COVID-19), Samsung Electronics achieved a record-breaking sales figure approaching 67 trillion won in the third quarter of 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 Reporter Dongwoo Lee] Samsung Electronics and LG Electronics recorded record operating profits in the third quarter of this year despite the spread of the novel coronavirus infection (COVID-19), driven by an increase in pent-up demand, drawing attention to whether they will continue their strong performance in the fourth quarter.

According to the industry on the 1st, Samsung Electronics reported consolidated third-quarter results with sales of KRW 66.9642 trillion and operating profit of KRW 12.3533 trillion, up 8.0% and 58.8% respectively from the same period last year. Sales surpassed the highest quarterly figure ever recorded in 2017 of KRW 65.98 trillion, and operating profit exceeding KRW 10 trillion was the first time in seven quarters since the fourth quarter of 2018 (KRW 10.8 trillion).

By division, the mobile (IM) division posted an operating profit of KRW 4.45 trillion, the home appliances (CE) division KRW 1.56 trillion, semiconductors KRW 5.54 trillion, and displays KRW 470 billion.

The sales of flagship models such as the Galaxy Note20 and Galaxy Z Fold2 increased by 50% compared to the previous quarter, driving the third-quarter performance. Although server demand was weak in the memory division, the company actively responded to increased mobile and PC demand due to COVID-19 and expanded sales of SSDs (solid-state drives) for new game consoles, improving performance. It is also analyzed that there was an impact from increased orders from Huawei.

However, a slight slowdown in performance is expected in the fourth quarter compared to the third quarter. This is because semiconductor supply is expected to be cut off as U.S. sanctions on Huawei intensify, and prices of server DRAM are also expected to fall.

Seungwoo Lee, a researcher at Eugene Investment & Securities, said, "In the fourth quarter, profits are expected to slow compared to the third quarter due to the decline in the won-dollar exchange rate, decreased semiconductor sales to Huawei, and an adjustment process following the sharp increase in set shipments in the third quarter."

LG Electronics also recorded its highest quarterly performance ever in the third quarter. The company posted an operating profit of KRW 959 billion, up 22.7% from the same period last year, and sales of KRW 16.9196 trillion, up 7.8% over the same period. Sales were the second highest among all quarters, following the fourth quarter of 2017 (KRW 16.9636 trillion).

The home appliance (H&A) division recorded sales of KRW 6.1558 trillion and operating profit of KRW 671.5 billion, with cumulative operating profit exceeding KRW 2 trillion through the third quarter this year. LG Electronics analyzed that it achieved high sales performance in premium new appliances such as stylers, dryers, and dishwashers.

The mobile (MC) and vehicle components (VS) divisions, which have been LG Electronics’ weak points, also reduced their losses in the third quarter. The MC mobile phone division’s operating loss was KRW 148.4 billion, improving by more than KRW 50 billion compared to the second quarter (loss of KRW 206.5 billion). The reduction in losses is attributed to increased sales of mid- to low-priced budget products. The vehicle components division (VS), which produces automotive parts, succeeded in improving its operating loss to KRW 66.2 billion in the third quarter from a loss of KRW 202.5 billion in the second quarter, an improvement of more than KRW 150 billion.

LG Electronics plans to continue its strong performance in the fourth quarter by securing profitability.

The H&A business division plans to maintain double-digit sales growth compared to the same period last year, led by new appliances, and secure profitability above the same period last year through optimized resource allocation. The TV market is also expected to achieve profitability above the same period last year by increasing sales of premium products such as OLED TVs, NanoCell TVs, and large TVs, as well as expanding online sales and efficient resource management.

The global 5G smartphone market is expected to grow significantly. The MC business division will strengthen its 5G budget lineup centered on key markets such as North America and Latin America to expand sales and consistently pursue business structure improvement.

Dongwon Kim, a researcher at KB Securities, explained, “LG Electronics’ smartphone inventory is only about 50% compared to last year, so the possibility of loss expansion is limited. Accordingly, operating profit in the fourth quarter is expected to rise 442% year-on-year to KRW 551.6 billion, achieving the highest quarterly performance.”