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76% of Samsung Electronics’ Profits Come from Component Business
Shade of Record Profits
76% of Samsung Electronics’ Profits Come from Component Business
  • By Cho Jin-young
  • October 16, 2017, 01:30
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Samsung Electronics’ dependence on component business continues to grow, accounting for 76 percent of its total profit.
Samsung Electronics’ dependence on component business continues to grow, accounting for 76 percent of its total profit.

 

Samsung Electronics renewed its record profit again in the third quarter for two straight quarters. Taking a close look at, however, the company’s dependence on component business, which is sensitive to market conditions including semiconductor, continues to grow. Samsung Electronics has now an uncertain future as it get a delay in the development of new future growth engines due to the absence of its control tower caused by the imprisonment of Vice Chairman Lee Jae-yong and the resignation of Vice Chairman Kwon Oh-hyun.

According to business industry and securities industry sources on October 15, Samsung Electronics  posted 62 trillion won (US$54.99 billion) in sales and 14.5 trillion won (US$12.86 billion) in operating profit in the third quarter, up 1.64 percent in sales and 3.06 percent in operating profit, respectively, from the previous quarterly record profit in the second quarter.

The company is expected to record its highest-ever quarterly earnings in the fourth quarter once again. An official from Samsung Electronics said, “The semiconductor market conditions has continued to be in good shape. So, the business showings of the display division will improve as the sales of smartphones using organic light-emitting diode (OLED) panels have increased. The mobile business division is also expected to see its performance increase as the sales of the latest Galaxy Note 8 are reflected in earnest in the fourth quarter.”

However, the company’s dependence on its component business is expanding. The securities industry predicts that nearly 11 trillion won (US$9.76 billion) out of 14.5 trillion won (US$12.86 billion) of the total operating profit in the third quarter would come from the semiconductor and display divisions alone. The figure accounts for 76 percent of the total.

Samsung Electronics has seen its dependence on the device solutions (DS) business division, which is in charge of parts business, such as semiconductor and display, grow after 2013 when the company made the biggest-ever annual earnings. The operating profit ratio of the DS division to the total has increased from 27 percent in 2013 to over 50 percent in 2015 and 2016, and is highly likely to reach 70 percent this year.

The situation is similar in terms of sales. The sales ratio of the DS division went up by about 10 percent points from some 20 percent in 2013 to some 30 percent last year and is expected to take up nearly half of the total this year.

Under the given condition, Samsung Electronics’ performance will go down when the market conditions of memory semiconductors, which occupy most of its semiconductor business, gets worse. The price of memory semiconductors is expected to decrease as not only Samsung Electronics but also its competitors will begin operation of their expanded plants in earnest from 2019.

Samsung Electronics’ share in its main markets of smartphones and TVs has been already lagging behind China due to its competitors’ growth and the price of liquid-crystal displays (LCDs) is on the decrease because of Chinese influence in the display sector.

This is true of the statement of Samsung Electronics Vice Chairman Kwon Oh-Hyun who said on the 13th that he would resign as the company’s head of the DS Business and the Chief Executive Officer of Samsung Display and would not seek re-election as a member of the Board of Directors and the Chairman of the Board when his term ends in March, 2018, saying, “We are reporting record profits but they are the fruit of the previous decisions and investments. We cannot even consider seeking out our new growth engine by reading the future trend.”

An official from the business industry said, “When a company makes a decision in investment a bit late, even a conglomerate becomes less competitive in an instant due to the nature of the rapidly changing IT industry. Samsung Electronics will also have no choice but to follow in the footsteps of Nokia, Motorola, Kodak and Sony, which had been once considered the world’s number one in the industries, when the company fails to find a new future growth engine as soon as possible.”