Samsung q1'15 commentary intro

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Samsung Electronics Results Q1 2015Summary and Commentary

(Based on Samsung’s un-audited earnings release 29th April 2015, in KRW)

Note: Samsung Q1 = Calendar Q1

The following slides are in USD, converted from the KRW results using quarter-end exchange rates. This provides the most relevant comparisons with global technology companies.

(Samsung has not yet released its Dollarised results, which when available may vary depending on the mix of exchange rates and currency hedges employed by the company)

These data are derived from results published by Apple, Inc., from the published results

of other companies, and from assorted independent analysts, as identified in the slides.

The opinions are those of the author, and should in no way be interpreted as

investment advice.

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Samsung Electronics

•Samsung Electronics is the largest company within the Samsung Group, a “Chaebol” conglomerate based in the town of Samsung, in South Korea.

•Samsung Electronics comprises three main divisions, one of which is usually reported in two parts. These are:

•Device Solutions, which includes:

•The Semi-conductor Division, abbreviated to “Semi”

•and the Display Panel Division, abbreviated to “DP”

•Consumer Electronics Division, abbreviated to “CE”

•IT & Mobile Communications Division, abbreviated to “IM”. This includes the smartphone and tablet business.

•In 2013, Samsung Electronics accounted for 64% of the revenue and 92% of the Net Income of Samsung Group

•This report focuses entirely on Samsung Electronics

AquillaSource: Samsung Electronics Results

Quarterly Revenue and YoY GrowthContinuing Decline •The sharp declines of

the past two quarters eased slightly, with a fall in $ revenues of only 15%

•Set against Apple’s equivalent quarter Samsung Electronics reported sales 27% lower, and its Mobile division 60% less than Apple’s sales

•However the slowing declines may suggest that the worst is over, and with the Galaxy S6 now shipping, and Semi Conductor surging ahead, the picture may look rather better in the upcoming quarters

Comparative Revenues CQ1 2015

App

le

Mic

roso

ft

Goo

gle

-30%

-15%

0%

15%

30%

45%

60%

75%

90%

0

10

20

30

40

50

60

70

80

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Growth (%)

Revenue (B$)

Samsung Electronics Revenue

Revenue B$ Revenue YoY Growth


Divisional ProfitabilityMobile Supplanted by Semi •For the third quarter in succession the

Semi-conductor Division has been the major profit contributor, with 46% of the profit at a healthy 29% margin

•IM operating margins gained slightly to 11% (from 7% in Q4 2014), but down from 16% a year ago. This represented 43% of the whole

•DP and CE remain less profitable, though both were marginally positive in Q1

•These figures suggest the conflict between Samsung as OEM supplier through its Semi-conductor division, versus device vendor through IM continues to swing towards the OEM business

•The 14nm fab plant will prove increasingly influential - it has already regained Apple as a customer

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

B$

Divisional Operating Profit

Semi%Opera*ng%Profit%B$% DP%Opera*ng%Profit%B$% CE%Opera*ng%Profit%B$% IM%Opera*ng%Profit%B$%


InventoryInventories Jump Upwards •Samsung had warned of excess

inventory back in Q2 2014, and while Q4 saw the picture improve, Q1 2015 reported a sharp increase as the company exited the quarter with 37 days of stock, up from 30 in December

•This contrasts dramatically with Apple’s, who carried less than 4 days of stock at the end of the same quarter

•The company reported stabilised inventory in its IM business, leading to improved margins, which suggests that the inventory increases derive from other divisions

0

5

10

15

20

25

30

35

40

45

50

0.0

5.0

10.0

15.0

20.0

25.0

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Days of Stock

Inventory (M$)

Samsung Electronics Inventory

Inventory B$ Days of Stock

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Smartphone Units - ChallengedTracking the trailing 12 months (current and 3

previous Quarters) eliminates seasonality, and

gives a better indication of the longer term trends

Source: Gartner, IDC and others

0

40,000

80,000

120,000

160,000

200,000

240,000

280,000

320,000

360,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Q2 '15

Q3 '15

Q4 '15

Trailing 12m Units (000s)

Q Units (000s)

Smartphone Units

Smartphones kU Smartphones Trailing 12m kU


Regional SplitsRed Ink Everywhere •Sharp declines were

reported in every region Home Market Drops •South Korea declined

19%, with Apple the main beneficiary

America Turns •The Americas saw a

second quarter of decline, but it remains Samsung’s largest region

Europe Fades Further •29% YoY growth in 2012

has given way to big declines in 2014, with another sharp drop in Q4

Asia/Africa Reverses •Even the promising Asia/

Africa region posted a sharp decline

China Worrying •Massive 44% growth in

2013 has reversed catastrophically in this critical region, with the sharpest decline of all

Most recentShare YoY

8% -19%

38% -15%

22% -31%

17% -25%

14% -34%China B$

Asia/Africa B$

Europe B$

America B$

South Korea B$

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

Q3 '11

Q4 '11

Q1 '12

Q2 '12

Q3 '12

Q4 '12

Q1 '13

Q2 '13

Q3 '13

Q4 '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Regional Splits

Note: Q1 Regional Breakdowns not yet available from Samsung - commentary relates to Q4


Competitive Landscape - TabletsApple still leads in declining and fragmented market •Apple still leads, but lost 6% of share YoY •Samsung remains a clear second, but other vendors lag

substantially •Others represents 42% of the market, but the real

competition is from Phablets, from which both Apple and Samsung benefit through higher ASPs and margins

Q1’15 M Q1’15% Q1’14 M Q1’14% Change

Apple 12.6 26.8% 16.4 32.7% -22.9%

Samsung 9.0 19.1% 10.8 21.6% -16.7%

Lenovo 2.5 5.3% 2.0 4.1% 23.0%

ASUS 1.8 3.8% 2.6 5.2% -30.7%

LG 1.4 3.1% 0.1 0.2% 1423.7%

Others 19.7 41.9% 18.1 36.3% 8.6%

Total 47.1 100.0% 50.0 100.0% -5.9%

Q1 2015 Tablet Units (IDC)

Source: IDCSource: IDC

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Samsung’s Q4 Results Analysis - Full Slide Deck

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Samsung’s Q1 2015 Audited Results Analysis

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Samsung q1'15 commentary intro