Samsung Q2 Grows Despite Declining Prices
Staff Reporter -- EDN, July 14, 2006
Seoul, Korea-based consumer electronics giant Samsung Electronics Co. Ltd. today reported revenue for its Q2 ended June 30 of $14.7 billion (14.11 trillion won) up a modest 4 percent year-over-year and 1 percent sequentially.
Q2 net income was $1.6 billion (1.51 trillion won) while operating income was $1.5 billion (1.42 trillion won).
“During the second quarter, many companies in the same industry faced difficulties due to declining prices in mainstay products,” said Dr. Woosik Chu, senior VP and head of Samsung Electronics' investor-relations team.
“However, it’s noteworthy that operating profit exceeded market expectations amid a challenging market environment in the previous quarter - a result of our competitiveness and focus on innovation,” he continued.
“We expect the second quarter to mark the trough and anticipate improvements in the second half of this year. Already, we saw market conditions for NAND flash, LCDs, and handsets stabilizing in the second quarter,” Chu noted.
Operating profit of the semiconductor business reached $1.02 million (980 billion won) on revenue of $4.6 billion (4.42 trillion won) in Q2, reflecting a 12 percent sequential drop from Q1 for operating profit, mainly due to a drop in NAND flash chip prices.
In the DRAM business, Samsung reported that profit margins continued to improve in premium products, such as mobile and graphics, while prices for DDR1 and DDR2 were strong amidst difficulties by competitors to migrate to 90nm processing technology.
Seasonality played a part in the price declines in the NAND flash memory market, however prices began to stabilize in the middle of May and conditions are expected to improve in the second half with rising demand.
Introduction of new products that require larger memory such as MP3s, PMPs, and handsets is expected to boost demand. In addition, conditions will improve with the seasonal demand pick up in the third quarter and migration to the finer process technology, in particular 60nm technology, will reduce manufacturing costs, boosting profitability.
Samsung’s telecommunication network business posted revenue of $4.5 billion (4.28 trillion won).
The pace of the demand increase is expected to accelerate in Q3 as the overall 3G market grows and demand for replacement rises. Should sales of Samsung Electronics’ “Ultra edition” handsets gain traction, the company expects both the volume of sales and ASP to see significant improvement.
The LCD business reported revenue and operating income of $3 billion (2.85 trillion won) and $78.4 million (75 billion won), respectively.
Sales of 40-inch and larger panels jumped 87 percent sequentially to 1.2 million panels due to strong demand for larger TVs. The company believes profitability of the LCD business in the previous quarter was a testament to its competitiveness in the industry, as the climate for the LCD market was weak.
In Q3, increased demand for LCD TV panels is expected to dominate the industry dynamics. This will square favorably with an expected rise in demand for IT-related products. Thus, LCD panel prices are expected to stabilize.
The company also said it plans to boost monthly capacity of its Line 7-1, the S-LCD joint venture, to an additional 15,000 units during the third quarter to accommodate the increasing demand for larger TVs and strengthen its market leadership in this segment. Cost leadership in TV panels, early adoption of the 7G line and economies of scale continue to be the strengths of Samsung Electronics.
