Samsung Electronics Co Ltd said on Wednesday it expected profit to decline in the current quarter due to a coronavirus-related slump in sales of smartphones and TVs, although the chip business would remain solid.
For the first quarter ended March 31, 2020, Samsung's total revenue was KRW 55.33 trillion, a decrease of 7.6% from the previous quarter mainly due to weak seasonality for the company’s Display business and Consumer Electronics Division and partially due to effects of COVID-19. From a year earlier, revenue rose 5.6% due to increasing demand for server and mobile components.
Operating profit was lower by KRW 0.7 trillion quarter-on-quarter to KRW 6.45 trillion, affected by the same factors that weighed on revenue with a corresponding decrease in operating margin, even though memory earnings were higher. Compared with a year earlier, Samsing's operating profit increased by KRW 0.2 trillion with an improved product mix in the mobile business and additional diversification of the Company’s customer base in mobile OLED.
Samsung said that earnings from its Memory Business improved as demand was solid mainly from servers and PCs, while demand from mobile remained steady. Profits from the logic chip business rose as supply of mobile components increased to major customers and the foundry business saw a profit decline due to lower demand for high-performance computing (HPC) from China.
In the Display Panel Business, mobile displays posted a decline in earnings amid weak seasonality and lower sales in China due to COVID-19 related shutdowns, while losses narrowed in the large panel business.
The company's Mobile Communications Business saw profits increase from the previous quarter and from a year earlier despite weakening sales toward the end of the first quarter. The profit improvement was a result of an improved product mix with the launch of flagship Galaxy S20 devices and efficient management of marketing expenses.
The Consumer Electronics Division posted lower earnings as weaker seasonality and impact from COVID-19 affected quarterly results. Compared to the previous year, profits from the TV business declined amid pricing pressure from intensifying competition, while home appliances saw an improvement on the back of strong sales of new premium products.
Looking ahead to the second quarter, Samsung expects the memory business to remain solid, but overall earnings are likely to decline from the previous quarter because COVID-19 will significantly impact demand for several of its core products.
For the component business, Samsung expects memory demand to remain robust for servers and PCs as more people work from home, but it is possible the mobile market may soften. Earnings from OLED screens are likely to be weaker due to a stagnant smartphone market.
Sales and profits of set products business, including smartphones and TVs, are expected to decline significantly as COVID-19 affects demand and leads to store and plant closures globally. To address this, Samsung will leverage its global production flexibility and supply networks as well as strengthening its online sales capabilities.
In the second half, uncertainties driven by COVID-19 will persist as the duration and impact of the pandemic remain unknown. Samsung plans to focus on optimizing resource allocation in the short term, while continuing to develop innovative set products.
For the Memory Business, Samsung plans to address market changes through flexible investments and product mix adjustments. The company will focus on expanding demand for high-density server SSD of more than 2TB while continuing to extend migration to 5th-generation V-NAND. The company will also focus on accelerating transition to 1Z-nm DRAM and 6th-generation V-NAND.
For OLED, it will actively meet demand for new product releases and expand presence in new application areas such as foldable displays.
The Mobile Communications Business aims to strengthen its product lineup by introducing new premium models and expanding offerings of 5G models for the mass market. The Networks Business will focus on developing technologies and enhancing global competitiveness to reinforce the 5G business.
For the Consumer Electronics Division, under the risk of current economic uncertainties, Samsung will monitor the market situation and will continue to focus on minimizing negative impacts by investing in efficient marketing and promotions tailored to each region and by optimizing its logistics.
In the second quarter, Samsung expects demand for 5G mobile processors and ultra-high-resolution image sensors to contract owing to fading effects of launches of flagship smartphones and weak consumer sentiment due to COVID-19. However, the Samsung will focus on minimizing impacts by maximizing the supply of high-pixel image sensors and expanding the 5G SoC market.
Samsung's Foundry Business saw a slight decrease in earnings due to a decline in demand for HPC chips from Chinese customers. In the second quarter, Samsung aims to expand EUV leadership, beginning with the start of mass production of 5nm products, while closely monitoring the uncertain market situation caused by COVID-19.
The company will also focus on the development of GAA 3nm process.
Samsung expects a further drop in mobile display earnings due to falling demand in the US and Europe, driven by the impact from COVID-19. For large displays, earnings are likely to remain weak owing to the market slowdown accelerated by the postponement of mega sporting events such as the Summer Olympic Games. Samsung will focus on providing value-added products such as panels for ultra-large and 8K TVs as well as curved monitors. The The company is also strongly committed to keeping continued leadership in the OLED market by exploring new applications including displays for foldable phones and other IT devices. For large displays, while Samsung winds down the LCD business, it will continue to address demand from its customers and accelerate product development based on new technologies such as QD Displays.
Due to the impact of COVID-19, the ASP of flagship smartphones increased compared to last year on the back of higher-than-expected share of Galaxy S20 Ultra sales as well as solid sales of the Galaxy Z Flip.
Looking ahead to the second quarter, demand is expected to drop sharply in most regions due to an economic downturn caused by COVID-19. Samsung expects a decline in product sales and its overall business performance as the market shrinks and effects of store closures continue to have direct impacts. In case of any additional disruptions at production facilities, Samsung will respond by flexibly utilizing its diversified manufacturing capabilities across the globe. The company will continue to offer differentiated products in the premium segment with the launch of new foldable and Note models.