Samsung Transforming into a Semiconductor and Systems Company

  • Samsung today announced its fourth quarter (Oct-Dec) 2017 and full year results. The results have been good but also indicate how Samsung Electronics has been transforming from a B2C to a B2B company.
  • The Korean giant recorded a solid performance generating its highest ever, ~$60 Billion revenues in a quarter with operating profit of close to $19 Billion in the last three months of 2017.
  • For the full year, Samsung generated its highest ever annual revenues of $212 Billion and an operating profit of close to $48 Billion.
  • Samsung generated more profit in 2017 than in 2016 + 2015 full years combined
  • This is a phenomenal growth story for Samsung Electronics as the bulk of the growth in the top and bottom lines is not driven by the mobile division but the semiconductor division.
  • The demand for Samsung’s Memory solutions have skyrocketed as both NAND Flash (see here) and DRAM memory (see here) have become an important component for smartphonecomputing and cloud datacenter applications
  • The move to higher storage capacities started with Apple’s iPhone and adopted well by Chinese brands have kept the demand for memory bits at an all-time-high.
  • However, the industry is quickly moving towards 3D NAND and especially towards TLC 3D NAND, which will further ease some supply pressure and bring memory prices to more reasonable levels.  (see here more on 3D NAND here in this free report)
  • Samsung Semiconductor (LSI+ Memory) now contributes close to three-fourths of the operating profits, thanks to rising demand for memory as well as the tight supply situation that kept memory component prices at all time highs.
  • Samsung’s Semiconductor division revenues grew 50% YoY in Q4 2017 and profits jumped a massive 131% YoY as Samsung benefits from the economies of scale.
  • Samsung Semiconductor now enjoys almost 52% Operating margins on its solutions. If you leave out of LSI and the foundry business, the memory sub-division profits will be higher still. Comparatively, the mobile business is around the 10% level.
  • Meanwhile, the Samsung Display business has been riding high on the iPhone X OLED model launch and saw a 58% YoY bump in Q4 revenues, though just a 10% uplift in operating profits. This is due to the cost of the custom-made display for Apple. As the costs are spread over the lifetime of the device, we should expect profits to rise (see here – How Samsung became Apple’s Top Supplier).
  • While Samsung Semiconductor has been the star performer, Samsung Mobile has its work cut out for 2018 to jump back to growth after losing the leadership position in world’s three most important and biggest mobile marketsChina (see here), India (see here) and USA (see here).
  • Europe, Middle East Africa and Latin America are still strongholds for Samsung, but brands such as Huawei, Moto, Tecno Group, BBK Group (OPPO, Vivo & OnePlus) and Xiaomi are poised to challenge the Korean vendor this year.
  • Overall, a strong quarter for Samsung Electronics as the component business continued to outperform the consumer business, effectively transforming Samsung into a semiconductor and systems company. Samsung’s component business is poised to surpass its DMC (CE + Telecom) business

Exhibit 1: Samsung Revenue & Profit Trends

Exhibit 2: Samsung Semiconductor (Memory+LSI) vs Samsung Mobile Operating Profit Trends

Exhibit 3: Samsung Operating Profits Share By Business Units