Display business improves performance driven by increased sales of flexible OLEDs and high-value LCDs

Samsung Electronics announced its second-quarter 2017 results, reporting consolidated revenue of 61 trillion won and an operating profit of 14.07 trillion won.

In the second quarter, revenue increased by 20% year-on-year to 61 trillion won, driven by the continued favorable memory market and expanded global sales of the Galaxy S8 and S8+. Operating profit also rose by 5.92 trillion won year-on-year to 14.07 trillion won, achieving an operating profit margin of 23.1%, thanks to a substantial increase in profits from the components business.

The components business saw a significant improvement in performance driven by strong memory prices, expanded sales of high-capacity server DRAM and SSDs, and increased sales of Galaxy S8 components in the System LSI and Display businesses. In the second quarter, the semiconductor business achieved sales of 17.58 trillion won and an operating profit of 8.03 trillion won.

While demand growth for memory slowed in some sectors, such as mobile, due to the seasonal off-peak period, strong demand for high-capacity server DRAM and SSDs persisted; coupled with overall industry supply constraints, a robust supply and demand situation and an upward price trend continued. NAND continued to improve performance following the previous quarter by focusing on the sales of high-value products such as high-capacity products of 64GB or more for mobile and enterprise SSDs, while DRAM focused on expanding sales of differentiated products such as high-capacity products for servers and HBM2, a high-bandwidth memory.

In the third quarter and the second half of the year, robust supply and demand for memory are expected to continue as demand for mobile and server-driven products grows. We plan to actively respond to the demand for high-capacity server storage, which is expected to see high growth centered on the Pyeongtaek semiconductor line, while also strengthening our technological leadership by focusing on the development of 5th-generation products following the 4th-generation 64-layer products.

System LSI saw its performance improve compared to the previous quarter as mass production of 10nm-based APs for flagship smartphones began in earnest and demand for 14nm-based mid-to-low-end APs and image sensors remained strong. In the second half of the year, continuous revenue growth is expected to continue as the supply of display driver chips (DDIs) for flagship OLEDs begins in earnest and the supply of image sensors is anticipated to increase due to the expanded adoption of dual cameras.

The Foundry business unit, launched last May, is stably mass-producing the 10nm mobile APs it began supplying for the first time in the industry, and has seen sales growth in 14nm mobile products as well as products for IoT, home appliances, and PCs. To meet the increasing demand for 10nm mobile APs, the Foundry business unit plans to increase the production capacity of existing lines and expand supply through the addition of a new line in Hwaseong, while also completing the development of the 8nm process in a timely manner to maintain its technological leadership.

Performance improved due to increased global sales of the Galaxy S8

In the set business, performance in the wireless sector improved due to expanded global sales of the Galaxy S8, but TV performance slowed due to rising panel prices, and profits in home appliances decreased compared to the same period last year due to investments in the B2B market.

The display business recorded sales of 7.71 trillion won and an operating profit of 1.71 trillion won in the second quarter. In the second quarter, performance improved compared to the previous quarter due to increased sales of flexible OLED panels and high-value LCD products. The OLED division saw improved performance driven by increased sales of flexible products following expanded sales of flagship models by major customers, while the LCD division also improved by expanding sales of high-value products centered on UHD and large-screen TVs.

In the second half of the year, the OLED division is expected to see revenue growth compared to the first half due to the expansion of flexible product supply; however, intensified competition with Low Temperature Polysilicon (LTPS) LCDs in the mid-to-low price market and increased costs resulting from the ramp-up of new lines in the third quarter are anticipated. In the second half, the LCD division is expected to face supply-demand imbalances due to increased panel inventory among set manufacturers and expanded supply from the panel industry; nevertheless, growth in the premium TV market, including high-resolution and ultra-large TVs, is also projected to continue.

The TV division maintained its leadership in the premium market by expanding the sales proportion of key products such as UHD and ultra-large TVs; however, performance declined due to slowing sales and declining profitability caused by rising panel prices. The home appliance division continued revenue growth through strong sales of Wind-Free air conditioners during the peak season and strengthened sales of products like AddWash washing machines and premium refrigerators; nevertheless, performance decreased compared to the previous year due to rising raw material costs and the impact of investments in the U.S. B2B market.

Earnings are expected to increase in the second half, driven by the parts business.

While performance is expected to increase in the second half of the year, driven by the components business, it is projected to decline slightly in the third quarter due to a slowdown in the display and wireless businesses.

Meanwhile, Harman achieved solid results in terms of operations, with sales of $1.9 billion and an operating profit of approximately $200 million, but recorded a net operating profit of about $5 million due to acquisition-related costs. Over the next few quarters, acquisition-related costs are expected to average around $100 million, which will impact Harman's performance.

Samsung Electronics plans to strengthen the competitiveness of its core businesses by securing the world's highest and largest production capacities in the semiconductor and OLED sectors, while reinforcing its technological leadership. It also intends to foster its System LSI and Foundry businesses as future growth engines by strengthening their design and manufacturing capabilities, respectively.

However, while it is essential to secure advanced technologies through M&A and discover new growth engines through strategic investments to respond to the rapid changes in the IT industry, difficulties are also expected due to the continued uncertainty in the domestic and international business environment.