Mobile Headwinds End Samsung’s Stellar Profit Growth Run

by Trefis Team
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Samsung Electronics (OTC:SSNLF) published its Q2 2018 results on Tuesday, reporting a mixed set of numbers as headwinds in its smartphone business offset a robust performance by its memory operations. While Samsung’s revenue declined by 4% to 58.5 trillion ($52 billion), its net profit remained almost flat at  11.04 trillion won ($10 billion). Below, we take a look at the performance and outlook for Samsung’s Mobile and Semiconductor operations.

View our interactive dashboard analysis, which outlines our expectations for Samsung in 2018.

Mobile Business Faces Headwinds On Weak S9 Sales

Revenues for Samsung’s Mobile business, including its telecom equipment unit, declined 20% year-over-year to 24 trillion won ($21 billion), on account of weaker than expected sales of the Galaxy S9 handset and mounting competition from Chinese manufacturers who are offering phones with high-end specifications at low prices.  The division’s operating margins also declined to 11% from about 13.5% a year ago on account of higher marketing expenses and weaker premium phone sales. Samsung is looking to bolster the business with new launches including the new Galaxy Note 9, which is expected to be released a few weeks ahead of schedule, and a new device with a foldable screen, which could launch early next year. The company has also indicated that it could get more aggressive with its pricing strategy.

Semiconductor Business Posts Strongest Quarter Yet

Samsung’s Memory business posted its strongest ever quarter, with operating profits rising by 44% year-over-year to 11.6 trillion won ($10 billion), driven by continued strength in DRAM demand and pricing. Demand for DRAM is being driven by higher memory content in devices such as smartphones and a higher uptake from the server market. While Samsung is the largest DRAM manufacturer, it has also been benefiting from a favorable product mix, with higher sales of high-density and high-bandwidth products. Samsung could stay ahead of the curve, as it prepares to launch DRAM based on a 10nm-class process, offering superior performance and lower power consumption. While the NAND cycle has reversed, with the market veering towards oversupply, Samsung indicated that it was seeing higher memory content for devices (8TB server SSDs and 128GB mobile storage modules).

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