Samsung Reports Q1 Lower Profits, Higher Sales


Seoul, Korea - Samsung Electronics reported higher revenues but a 30 percent cut in profits in its first quarter ended March 31.

Samsung reported revenues of 36.99 trillion Korean won on a consolidated basis for the first quarter, a 7-percent increase year-on-year.

 But it reported consolidated net income of 2.78 trillion won, representing a 30-percent decrease year-on-year.

In its earnings guidance disclosed on April 7, Samsung estimated first-quarter consolidated revenues would reach approximately 37 trillion won.

By business, Telecom, Semiconductor and Digital Media & Appliances drove revenue growth in the quarter. The Semiconductor Business saw sales jump 12-percent year-on-year thanks to stronger demand for NAND products used in smartphones and tablet PCs, while the Telecom segment continued to perform strongly with sales reaching 10.64 trillion won.

However, Samsung's overall net profit declined after the strong first quarter performance in 2010, weighed down by lower semiconductor memory prices and reduced profitability in LCD panels and TV sets, the company said.

"A difficult business environment remained in the first quarter, due to rising costs of raw materials, uncertainties in the financial market in Europe, and the devastating earthquake in Japan," said Robert Yi, VP and Head of Samsung Electronics' Investor Relations Team. "But we will actively respond to such challenges by enhancing cost competitiveness in memory products through geometry migration, launching new smartphones and tablet PCs, as well as increasing the sales focus on premium LCD panels and TVs."

Operating profit for Digital Media & Appliances Business turned around from the previous quarter to register 0.10 trillion won on revenue of 13.52 trillion won in the first quarter.

Amid weak seasonality, Samsung's overall shipments of flat panel TVs fell 31 percent to 8.8 million units from the previous quarter. Profit was driven by increased sales of LED TVs, which now make up 39 percent of TV sales. For the remainder of 2011, sales of flat panel TVs are expected to remain slow in advanced countries, with emerging markets forecast to take up 55 percent of total demand by year end.

As for digital appliances, emerging market growth and brisk sales of premium refrigerators, washing machines and air conditioners in Europe drove up revenue by 13 percent compared with the same period last year. Samsung will continue focusing on the launch of new premium and eco-friendly products, while enhancing global production efficiency.

Samsung forecasts that the challenging business conditions will persist in the second quarter, effected by lingering worries over the global economy and tight competition in consumer electronics and mobile businesses.

The impact on earnings from volatility in foreign exchange was minimal, as the fluctuation of the Korean won against the US dollar and the euro was less than 1 percent. With regards to concerns over disruptions to the supply chain after the March 11 earthquake in Japan, Samsung expects the impact on its businesses to be relatively limited.

Beginning this quarter, Samsung has renamed the LCD and Digital Media segments in the earnings release as Display Panel (DP) and Digital Media & Appliances (DM&A), respectively. The set-top box product line, which previously was under Telecom, is now part of DM&A, and 2010 earnings have been re-stated for comparison.

The Display Panel Business recorded an operating loss of 230 billion won on revenue of 6.51 trillion won, representing a 5-percent sales dip on the same period last year. Overall market shipments of LCD panels declined 8 percent quarter-on-quarter due to weak seasonality, set-makers' conservative inventory management and slower sales in China.

For Samsung, total panel shipments also decreased quarter-on-quarter, but were up by around 10 percent compared with the first quarter of 2010. Highlights included increased shipments of high-end LED panels and strong sales of tablet displays, which saw growth in the high 30-percent range.

Samsung forecasted that demand for LCD panels will begin to gather momentum in the latter part of the second quarter, as set-makers restock inventory for the peak sales season ahead. The business will focus on securing profitability through emphasis on differentiated products and enhanced manufacturing line efficiency.

In its Telecommunications businesses - including mobile communications and telecommunication networks - posted an operating profit of 1.43 trillion won on revenue of 10.64 trillion won. The businesses maintained an operating profit margin of 13.5 percent for the quarter.

Samsung sold a total of 70 million mobile handsets during the quarter, down 14 percent year-on-year. However, strong sales of smartphones and high-end mobile devices helped to increase Samsung's average sales price and boost operating profit. Smartphones made up 18 percent of Samsung's total handset unit sales for the quarter, up from 4 percent during the same period last year.

In the second quarter, Samsung expects the industry to see single-digit growth in mobile handset demand quarter-on-quarter. The company aims to continue to outperform the market by launching of a range of devices to meet diverse market needs.


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