Samsung Smartphones, Despite Fourth Quarter Decline... Annual Operating Profit Exceeds 11 Trillion Won

[Asia Economy Reporter Eunmo Koo] Samsung Electronics' IM (IT & Mobile) division, responsible for the smartphone business, achieved an annual operating profit in the 11 trillion KRW range. Although the fourth-quarter results last year declined due to the impact of Apple's iPhone 12 launch, this was a result supported by strong third-quarter performance. Overall for the year, operating profit increased by more than 2 trillion KRW compared to the previous year (9.27 trillion KRW), recovering to double digits again. This year, with the early launch of the flagship ‘Galaxy S21’ series and the full-scale expansion of the 5G market, the trend of improving performance is expected to continue.

On the 28th, Samsung Electronics announced that the IM division's operating profit for Q4 2020 was 2.42 trillion KRW, a 4% decrease compared to the same period last year. Revenue for the same period was 22.34 trillion KRW, down 10%. Compared to the previous quarter, operating profit and revenue decreased by 45.6% and 26.7%, respectively. Samsung Electronics explained, "Due to intensified year-end competition and increased marketing expenses, Q4 revenue and operating profit decreased," but added, "Efforts to improve cost structure, such as parts standardization, continued to maintain a double-digit operating profit margin." It is interpreted that the impact of Apple’s first 5G smartphone, the iPhone 12, launched in October last year, and increased year-end marketing expenses were significant.

However, for the entire year, the '10 trillion KRW operating profit barrier' that had collapsed a year ago was rebuilt. Last year, the IM division recorded an annual operating profit of 11.47 trillion KRW. This is an increase of more than 2 trillion KRW compared to 9.27 trillion KRW the previous year. Although sales of the Galaxy S20 series were sluggish due to the spread of the novel coronavirus (COVID-19) at the beginning of the year, mobile demand, which had been suppressed, recovered from the third quarter, showing strength. Sales of flagship models such as the ‘Galaxy Note20’ and ‘Galaxy Z Fold2’ performed well, resulting in operating profit in the 4 trillion KRW range in the third quarter alone.

Last year, total IM division revenue was 99.59 trillion KRW, down 7% from 107.27 trillion KRW the previous year.

For the first quarter of this year, the plan is to turn things around with the premium smartphone ‘Galaxy S21’. Samsung Electronics has traditionally unveiled the Galaxy S series in February or March each year, but this year it was moved forward by about a month to January. The industry views this as a move to quickly release new products to counter the iPhone 12 and to rapidly target the gap left by Huawei, which was hit by US sanctions.

Samsung Electronics stated, “The mobile market will enter an off-season in the first quarter of this year, and demand for smartphones and tablets is expected to decrease compared to Q4 last year,” but also predicted, “Wireless business will see increased sales of flagship products due to the early launch of the Galaxy S21, leading to a rise in average selling price and the release of new mid-to-low-end models, resulting in increases in both revenue and profit compared to the previous quarter.”

This year, with the full-scale expansion of the 5G market, market demand is expected to recover to pre-COVID-19 levels. Samsung Electronics plans to maximize sales of the ‘Galaxy S21’ and promote the popularization of foldable smartphones such as the ‘Galaxy Z Fold’ and ‘Galaxy Z Flip’, solidifying its leadership position in the premium market.

Additionally, Samsung intends to strengthen its competitive mid-to-low-end 5G lineup to expand smartphone sales, while continuously reinforcing the growth foundation of businesses such as tablets and wearables. Furthermore, through collaboration with global partners, Samsung plans to further expand the Galaxy ecosystem and continue efforts to achieve solid profitability through cost structure improvements and operational efficiency.