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Samsung Electronics Results Q3 2014

Summary and Commentary

Note: Samsung Q3 = Calendar Q3

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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

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Key Data Points

Q3 ’14 (₩) Q3 ’14 ($) Q2 ’14 (₩) Q3 ’13 (₩) YoY ₩

Revenue 47.4 T₩ 45.2 B$ 52.4 T₩ 59.1 T₩ - 20%

Net Income 4.2 T₩ 4.0 B$ 6.3 T₩ 8.2 T₩ -49%

Semi-Conductor Div Sales 9.9 T₩ 9.4 B$ 9.8 T₩ 9.7 T₩ + 2%

DP Division Sales (Display) 6.3 T₩ 6.0 B$ 6.3 T₩ 8.1 T₩ - 23%

CE Division Sales (CE) 11.6 T₩ 11.0 B$ 13.0 T₩ 12.0 T₩ - 4%

IM Division Sales (Mobile) 24.6 T₩ 23.4 B$ 28.5 T₩ 36.6 T₩ - 33%

Smartphone Sales (IDC) Units 78.1 M 74.3 M 80.4 M - 3%

Tablet Sales (IDC) Units 9.9 M 8.5 M 9.7 M + 2%

Source: Samsung Electronics Results, IDCNote: USD Figures are as reported by Samsung Electronics

AquillaSource: Samsung Electronics Results

Net ProfitNet Profit Declines •Net Profit declined

again to $4.0B, or 9% of revenues, disappointing (but not surprising) the market

•The core reason remains under performing smartphone sales due to increasing competition, especially from China

•Signs of panic appeared in rumours of multiple executive changes in the IM division

•Samsung is consistently behind Apple in profitability, whose net profitability is now some 11% higher at 20% of sales

•There were few currency effects, as the Korean Won strengthened a mere 1% against the USD from Q3 2013.

Comparative Net Income CQ3 2014

Goo

gle

App

le

Mic

roso

ft

0%

3%

6%

9%

12%

15%

18%

21%

24%

27%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

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

Net Profit (%)

Net Profit (B$)

Samsung Electronics Net Profit

Net Profit B$ Net Profit %

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Tablet Units - Peaked?Tracking 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

-10,000

5,000

20,000

35,000

50,000

65,000

80,000

0

5,000

10,000

15,000

20,000

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

Trailing 12m Units (000s) Q Units

(000s)

Tablet Units

Tablets kU Tablets Trailing 12m kU

AquillaSource: Samsung Electronics Results

Regional Splits (to Q2 ’14)

Home Market Recovers •South Korea has proved

weak over the past 6 quarters, but recovered a little, gaining 12% YoY

America Dominates •The America region

remains the engine of growth, and grew 14% YoY, though begins to show signs of saturation

Europe Fades Further •29% YoY growth in 2012

has given way to decline in 2014, with a further 11% drop in Q2. Factors include market saturation, the gloss rubbing off the Samsung machine, and Europe remaining in recession

Asia/Africa Continues •A 7% uptick is solid, and

could continue for a while

China Worrying •Massive 44% growth in

2013 has reversed to a 9% decline in Q2, amidst strong local competition

Most recentShare YoY

10% 12%

34% 14%

19% -11%

21% 7%

15% -9%

Note: Q3 2014 detailed breakdowns not yet available from Samsung

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

Regional Splits

AquillaSource: Samsung Electronics Results

Marketing Spend (to Q2 ’14)Heavy Spend - Desperation? •Much of Samsung’s success in

smartphones, particularly in the US and Europe, was attributed to massive spend on advertising and sales promotion. Peaking at $3.4B in Q4 2012, the spend was clearly high

•Amidst slowing revenues Samsung almost matched this in Q2, with $3.2B spend

•Of this Sales Promotion was at its highest ever, at $2.1B, suggesting some desperation to keep sales moving

•The company stated in its results call that Q3 will see a much lower marketing spend than Q2 - this data is not yet available

•Samsung will also be challenged to match the powerful viral marketing success of Xiaomi in China, without the core product differentials that Apple brings

Tracking the trailing 12 months (current and 3

previous Quarters) eliminates seasonality, and

gives a better indication of the longer term trends

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

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

Percent of Rev T 12m

Marketing (M$)

Samsung Electronics Marketing Spend

Advertising M$ Sales Promotion M$ Percentage of Revenue Trailing 12m

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