A few weeks ago, Samsung Electronics estimated its operating profit to drop 95% compared to the previous year, which turned out to be accurate. Today, the South Korean firm announced its quarterly earnings for Q2 2023. The company has struggled for a few quarters due to a slump in the semiconductor chip market.
The company's revenue was KRW 60.01 trillion (about $47.21 billion) during Q2 2023, a 6% decline from Q1 2023. Its operating profit during the quarter was KRW 0.67 trillion ($524 million), a massive drop of 95% compared to Q2 2022.
While most of this drop in profit is due to weak semiconductor chip sales (DRAM and NAND storage), some of it is also attributed to weaker smartphone sales. The company revealed that the revenue from Samsung DS (Device Solutions) business improved slightly compared to the previous quarter, and it posted a narrower loss. Revenue from its Samsung Display (display panel manufacturing arm) and Samsung DX (TV and home appliances) divisions improved, too.
Samsung invested KRW 14.5 trillion during Q2 2023, including KRW 13.5 trillion for semiconductors and KRW 0.6 trillion for display panels. It invested in completing the P3 chip plant and designing the P4 chip plant. It continued to invest in expanding its chip plants in Taylor, Texas, USA, and Pyeongtaek, South Korea.
Samsung's semiconductor chip business is expected to improve in the second half of 2023
Samsung DS business consists of three parts: Samsung Foundry, Samsung Memory, and System LSI. Samsung Foundry makes semiconductor chips for other firms, while Samsung Memory designs DRAM, HBM, and NAND chips. System LSI designs camera sensors, Exynos processors, and other fragments.
Samsung Foundry
Samsung Foundry will continue to invest in chip manufacturing technologies to continue its advancements. It plans to enhance the completeness of its 3nm GAA chip manufacturing process and improve research and development and chip packaging technologies. Chips made by this process will start to show up sometime next year. It also said the production of 3nm chips is proceeding smoothly, and the production of second-generation 3nm (GAP) and 2nm (GAA) chips is on track. The foundry business saw its revenue increase slightly thanks to orders from US-based firms, but the company didn't reveal the name of its clients.
Samsung Memory
Thanks to a boom in generative AI services like ChatGPT, sales of DDR5 DRAM and HBM (High Bandwidth Memory) used in cloud servers increased. This led to the improved business of Samsung's memory chip division compared to the previous quarter. It will continue to focus on sales of high-margin products like DDR5, DDR5X, and HBM.
System LSI
The company's system semiconductors, developed by the System LSI division, decreased due to weaker demand from major clients (like Samsung MX, which makes smartphones). However, it also won a chip contract from an automotive firm (likely Hyundai), and it is actively in talks with European car firms for its automotive chips. It has also expanded its business into security cards with fingerprint authentication and battery management services (power ICs).
Samsung Display is faring well, focusing on OLED and QD-OLED panels
Samsung Display saw solid sales of smartphone OLED panels, and its business was similar to the previous quarter. This division also continued to focus on development sales of QD-OLED panels for PC monitors and TVs.
This division expects its business to improve in the coming quarters as its major clients (Apple and Samsung) will launch their premium mobile devices in the second half of this year. These expected products include the iPhone 15 series, Galaxy Z Flip 5, Galaxy Z Fold 5, Galaxy Watch 6 series, and the Galaxy Tab S9 series. Even sales of its QD-OLED panels are expected to improve as customers buy more high-end TVs during the holiday season.
Samsung Display acquired eMagin recently. eMagin makes OLED Microdisplays for XR devices like AR/VR headsets and AR glasses. The company aims to improve sales of such displays.
Samsung DX business fared well due to sales of premium TVs and home appliances
Samsung DX, which sells TVs and home appliances, also had better business compared to the previous year as sales of its premium TVs and home appliances improved. It aims to improve its business further by launching more power-efficient appliances powered by the SmartThings system. It also seeks to expand the lineup of Bespoke home appliances.
Samsung DX's revenue was KRW 14.39 trillion, and its operating profit was KRW 0.74 trillion during Q2 2023. While its sales decreased slightly compared to the previous quarter, it expects to see improved sales in the coming months.
Samsung MX is counting on good days ahead.
Samsung's smartphone division (Samsung MX) expected good business in the coming months as it announced several new high-end mobile products, including Galaxy Z Flip 5, Galaxy Z Fold 5, Galaxy Watch 6, Galaxy Watch 6 Classic, Galaxy Tab S9, Galaxy Tab S9+, and Galaxy Tab S9 Ultra during the Galaxy Unpacked event last night.
Overall, Samsung MX KRW 25.55 trillion in consolidated revenue and KRW 3.04 trillion in operating profit in the second quarter. Its profit margin was in the high double digits, and the division aims to improve sales of Galaxy S23, Galaxy Z Flip 5, Galaxy Z Fold 5, and its smartwatches by offering deals during the holiday season.
Samsung Networks saw a decline in business
Samsung Networks had a disappointing quarter as sales in Japan and North America declined. This comes after business improvements over the past few years as network providers worldwide increased their investments in rolling out 5G networks. However, it plans to improve revenue by selling more 5G core chips and software-based vRAN (virtualized Radio Access Networks).
Harman International posted impressive numbers as its profit increased
Samsung's subsidiary Harman International also showcased an increase in sales and profit on the back of higher sales of consumer audio products such as Bluetooth speakers and true wireless earbuds. The audio and car components business that Samsung acquired in 2016 plans to improve the sales of personal audio products.
What's next for Samsung Electronics?
The decline of the Korean Won against the EUR and the USD also worked in the company's favor. The company expects its revenue to improve in the second half of the year, helped by improved sales of electronic components. However, Samsung will be cautious about its next steps.
The company expects its semiconductor chip sales to improve in the year's second half. Its OLED and QD-OLED panel sales will also improve before the holiday season, as will the sales of premium appliances and TVs. Its smartphone sales will also improve during the holiday season before the end of this year. So, overall, things will improve as we approach the end of 2023, and growth is expected to happen in 2024.
