[Concall] Samsung Phones Achieve 11 Trillion KRW Operating Profit Last Year... "Will Release Various Form Factors" (Comprehensive)

[Image source=Yonhap News]

[Asia Economy Reporter Koo Eun-mo] Samsung Electronics' IM (IT & Mobile) division, responsible for the smartphone business, achieved an annual operating profit in the 11 trillion KRW range. Despite somewhat sluggish performance in the fourth quarter due to the impact of Apple's iPhone 12 launch, the strong results from the previous third quarter helped improve the annual performance. Samsung Electronics plans to continue this upward trend by launching the flagship ‘Galaxy S21’ series earlier and strengthening its foldable lineup this year. The company also announced it is reviewing various designs such as foldable, rollable, and slidable, signaling a forthcoming 'form factor war.'

Samsung Smartphones: Annual Operating Profit Surpasses 11 Trillion KRW Despite Fourth Quarter Setback

On the 28th, Samsung Electronics announced that the IM division's operating profit for Q4 2020 was 2.42 trillion KRW, down 4% compared to the same period last year. Revenue for the same period was 22.34 trillion KRW, a 10% decrease. Compared to the previous quarter, operating profit and revenue fell by 45.6% and 26.7%, respectively.

Samsung Electronics explained, "Year-end competition intensified and marketing expenses increased, leading to a decline in Q4 sales and operating profit," but added, "Efforts to improve cost structure, such as parts standardization, continued, maintaining a double-digit operating profit margin." The impact of Apple's first 5G smartphone, the iPhone 12, released in October last year, and increased year-end marketing expenses were significant factors.

In Q4 last year, mobile phone and smartphone sales reached 67 million units, with smartphones accounting for just over 90%. Tablet sales were 10 million units. The average selling price (ASP), including tablets, was $205. Both smartphone sales volume and ASP decreased compared to the same period last year.

However, on an annual basis, Samsung reestablished the '10 trillion KRW operating profit barrier' that had collapsed the previous year. The IM division's annual operating profit last year was 11.47 trillion KRW, more than 2 trillion KRW higher than the 9.27 trillion KRW recorded in 2019. Although Galaxy S20 series sales were sluggish due to the spread of COVID-19 early in the year, pent-up mobile demand recovered from Q3, showing strong performance. Flagship models such as the Galaxy Note20 and Galaxy Z Fold2 performed well, generating operating profits in the 4 trillion KRW range in Q3 alone. Total IM division revenue for last year was 99.59 trillion KRW, down 7% from 107.27 trillion KRW in 2019.

[Image source=Yonhap News]

Exploring Various Form Factors... Strengthening Foldable Lineup

Samsung Electronics plans to make a turnaround in Q1 this year by leading with the premium smartphone ‘Galaxy S21.’ Additionally, the company aims to lead market popularization by strengthening its foldable lineup.

Samsung Electronics has traditionally unveiled the Galaxy S series in February or March each year, but this year it moved the launch forward by about a month to January. Industry insiders interpret this as a move to quickly release new products to counter the iPhone 12 and to rapidly capture the market gap left by Huawei, which was hit by U.S. sanctions.

Samsung Electronics stated, "The mobile market enters a low season in Q1, so demand for smartphones and tablets is expected to decline compared to Q4 last year," but added, "The wireless business expects both revenue and profit to increase quarter-over-quarter due to expanded sales of flagship products from the early launch of Galaxy S21, rising average selling prices, and the release of new mid-to-low-end models."

Regarding concerns about profitability due to the Galaxy S21 being launched at a lower price than its predecessor, Samsung expressed confidence that the issue can be resolved by increasing volume and the proportion of high-end products. Kim Sung-gu, Executive Vice President of Samsung Electronics' Wireless Business Division, said during the earnings conference call, "The Galaxy S21 series is a product optimized through consistent efforts, improving cost structure while streamlining all processes including manufacturing and logistics. We will leverage the early launch effect and competitive pricing to expand volume, enhancing economies of scale, and increase the share of high-end products within the series to achieve good profitability."

Alongside the Galaxy S21 series, Samsung plans to continuously strengthen the Z line to promote the popularization of foldable phones. The company is reviewing various form factor designs such as rollable and slidable, and once product completeness and user satisfaction in terms of usability and quality are secured, it plans to introduce them to the market immediately.

Kim explained, "The Z Fold strengthens its super-premium position by enhancing usability for entertainment through its large screen, while the Z Flip meets the demand of millennials and female customers with its stylish design differentiation and competitive pricing." He added, "We will continue to improve product completeness and consumer experience by expanding the foldable ecosystem through strategic partnerships and reflecting feedback from users of previous models."

Regarding the network business, Samsung stated it is continuously exploring new business opportunities based on 5G technology. Executive Vice President Lee said, "Although 4G and 5G network construction in many countries was delayed due to COVID-19 last year, starting with the U.S. C-band auction in December, we are reviewing new business opportunities in India’s frequency auctions, Latin America, Europe, and other regions."