Samsung's third quarter profit fell sharply from a year earlier but improved from the previous quarter, as stronger smartphone sales and improved utilization in mobile OLED screens were weighed down by continued weakness in the memory chip market.

The company posted KRW 62 trillion in consolidated quarterly revenue and KRW 7.78 trillion in quarterly operating profit - those equate to drops of 5% and 56% respectively from Q3 2018.

Earnings from Samsung's Memory Business slumped significantly year-on-year as memory chip prices continued its downward trend amid the industry-wide weakness since the end of 2018. The logic chip business saw demand rise for image sensors and display driver ICs (DDIs), but also suffered from price declines in mobile application processors (APs).

The company's Display Panel Business saw profit from mobile displays increase YoY with solid sales of OLED screens, improved capacity utilization and reduced costs. However, losses continued in the large panel business due to ongoing capacity expansions in the broader industry.

In the Mobile Business, strong sales of the Galaxy Note 10 and A series boosted Samsung's profit, along with improved margins for mass-market models. The business also expanded its 5G product offerings and launched the Galaxy Fold. Meanwhile, the Network Business reported higher earnings YoY on growing commercialization of 5G service in Korea.

Samsung's Consumer Electronics Division posted a YoY decline in profit from the TV business amid pricing pressure from intensifying competition, despite growing shipment of premium models such as QLED and ultra-large size TVs. The company's earnings from home appliances rose on increased sales of premium products.

Outlook

Looking ahead to the fourth quarter, Samsung expects demand for components to turn sluggish in general amid weak seasonal effects, while marketing expenses are likely to increase to address year-end smartphone sales.

Memory chip demand is seen rising slightly quarter-on-quarter on the back of inventory building by customers in response to global macroeconomic uncertainties. Samsung says mobile displays will likely report weaker results in the fourth quarter, as demand falls short of initial expectations for certain premium smartphones and costs increase due to lower utilization in some production lines. Large panel prices are also likely to continue declining.

The company expects fourth-quarter earnings in the Mobile Business to decrease QoQ as marketing costs are set to rise and shipments to decline slightly, with flagship model sales weakening from their post-launch peaks.

For 2020, Samsung expects growing sales in 5G products and foldable devices; the logic chip business is forecast to report accelerated growth as it expands mass production of next-generation extreme ultraviolet lithography (EUV) based products.

However, Samsung warned that uncertainties linger over the memory chip market as demand is seen recovering but risks from global industry circumstances persist. As Samsung plans to manage investment and capacity operation flexibly depending on market conditions, Samsung expects the DRAM inventory to normalize in the first half of 2020.

Samsung's System LSI Business will introduce 5G System-on-Chip products and high-resolution sensors (108Mp and above), while its Foundry Business will seek to diversify its client base and expand production from the 5nm and 7nm EUV processes.

In Displays, Samsung plans to offer power-efficient and slimmer products to capture demand from 5G and other premium products. It will also transform its large panel business to focus on quantum-dot (QD) displays, with the existing LCD business addressing value-added products such as ultra-large and 8K TVs as well as high-end monitors.

Samsung's Mobile Business aims to improve profitability through leadership in premium products such as 5G and foldable devices as well as improved mass-model lineup. The Network Business will further its efforts to expand its 5G business globally including the United States and Japan.

In the Consumer Electronics Division, Samsung will continue to lead the premium TV market by expanding adoption of QLED 8K and ultra-large models and offer stronger lineups of innovative home appliances such as Bespoke products.

Looking ahead to the fourth quarter for NAND, Samsung expects demand for high-capacity storage to remain robust and prices are expected to rebound across all applications. For SSD, data centers are expected to adopt high-density, high-performance products, while for mobile, the trend of higher density storage is expected to continue with the launch of new high-end models. The company will focus on strengthening competitiveness in the premium market, and enhance technology leadership and profitability by transitioning to 6th-generation V-NAND within this year.

For the fourth quarter outlook for DRAM, although there may be some impact from recent inventory restocking at Samsung's customers, overall demand is likely to remain solid and to show some increase QoQ. For servers, demand from data centers will continue to be solid supported by high-density products, while for PCs, overall demand will be similar to that of the third quarter.

For mobile, continuing trend to high-density products with the launch of new 5G smartphones is expected to help demand remain solid. Samsung will focus on enhancing technological leadership by expanding high-capacity product sales for servers and actively responding to early demand for mobile LPDDR5.

In the fourth quarter, Samsung expects to generate solid earnings on mass production of EUV 7nm products, while setting up 4nm design infrastructures for future growth. For 2020, demand for mobile APs/modes/RFs and high-resolution image sensors is expected to increase significantly on the back of the growing 5G market. Samsung will accelerate the diversification of its customer base by expanding orders for 5G/AI/Auto/IoT/Power and fingerprint recognition applications and strive to complete the development of the GAA 3-nano process.

At the fourth quarter, mobile display profitability is expected to decline due to a product mix change and a cost increase from lower utilization of some production lines.

Large displays are also likely to see weak profitability for the fourth quarter as it continues to face falling demand and dropping price. Samsung will seek to secure profitability with product diversification including monitors and PIDs.

In 2020, for the mobile display business, demand for OLED screens is seen to grow steadily with wider adoption of 5G smartphones despite intensified competition. The company will continue to focus on expanding sales and boosting utilization with a broader customer base and stronger cost competitiveness. Additionally, Samsung will aim to actively address demand for foldable display panels and minimize seasonal impacts with wider applications.

For large displays, Samsung will look to realign its business structure to focus on QD-Display. It will continue to secure profitability by expanding sales of value-added products such as ultra-large panels, 8K TVs and premium monitors.

In the fourth quarter, while mobile demand is expected to decline YoY on seasonal effects and persistent global economic uncertainties, Samsung's mass-market smartphones, including the new A series, are projected to maintain solid sales. However, Samsung expects profit to decrease due to dissipating new model effects of the Galaxy Note10 and increasing marketing costs under strong seasonality. Looking ahead to 2020, Samsung Company plans to offer more 5G devices and foldable product.

In the fourth quarter, the Samsung forecasts TV demand will soften YoY on downside risks including global economic sluggishness and unfavorable foreign exchange rates stemming from trade protectionist practices. To mitigate the fallout from these risks, Samsung plans to expand sales of QLED TVs and broaden the lineup of super-large screen products. For 2020, TV demand will likely bounce back on global sports events like the Olympic Games in Tokyo while the Company plans to seek new business growth from 8K TVs and MicroLED TVs.