Semiconductors Account for 78% of Samsung's Profit
Samsung Electronics achieved a new milestone in the third quarter of this year as its operating profit surged past the 17 trillion won mark for the first time in its history,
The company announced on Oct. 31 that its third-quarter sales and operating profit reached 65.46 trillion won (US$57.48 billion) and 17.57 trillion won (US$15.43 billion), respectively, on a consolidated basis.
These figures are slightly higher than the provisional estimates announced on Oct. 5, which were 65 trillion won in sales and 17.5 trillion won in operating profit.
Its sales increased 5.5% compared to last year's (62.5 trillion won). Compared to the previous quarter, the figure was 11.9 percent higher. But it was a little lower than the previous record high of 65.98 trillion won set in the fourth quarter of last year.
The Q3 operating profit increased 20.9 percent from 14.53 trillion won in the third quarter of last year and 18.2 percent from the previous quarter's 14.87 trillion won. It surpassed its previous record high of 15.64 trillion won set in the first quarter of this year, opening the era of 17 trillion won in quarterly surplus.
The company’s operating margin, which is a measure of profitability, was 26.8%, meaning that the company has earned nearly 27 won in profits on every 100 won worth of sales.
Samsung’s semiconductor business led its outstanding performance. It recorded 24.77 trillion won in sales and 13.65 trillion won in operating profit, breaking all previous records. Its operating margin reached 55.1%.
Semiconductors accounted for 77.7% of Samsung’s overall operating profit, raising concerns again over the company’s heavy reliance on the chip business.
The IM (IT & Mobile) division, including smartphones, slowed down a bit by making 2.22 trillion won in operating profit, while the consumer electronics sector earned a comfortable 560 billion won in operating profit.
The display business, which constitutes the company’s device solution (DP) division together with the semiconductor business, has improved performance by making operating profit of 1.1 trillion won thanks to increased demands for flexible panels.
Samsung Electronics, which earned an average monthly profit of 5.8 trillion won in the third quarter, is expected to slow down in the fourth quarter.
While it is predicted that profit of the semiconductor division will decrease due to the recent downward trend in DRAM and NAND flash prices, analysts say the company’s smartphone business will also suffer a drop in operating profit due to an increase in marketing cost at the end of this year.
"In the fourth quarter, performance is expected to fall compared to the previous quarter due to slowing semiconductor markets," the company said.
However, it is likely that its annual sales and operating profit will reach 250 trillion won (US$220 billion) and 65 trillion won (US$57.1 billion), respectively, this year, surpassing last year's previous record of 239.58 trillion won (US$23.03 billion) and 53.65 trillion won.
In addition, experts predict that sales and operating profit will continue to grow even in 2019 and 2020 as well. In particular, some predict that its operating profit will surpass 70 trillion won by 2020.
Samsung Electronics said it plans to invest a total of 31.8 trillion won in facilities this year to enhance its business capabilities by strengthening its technology leadership. By business, the company will invest 24.9 trillion won in semiconductors and 3.7 trillion won in display.
Despite the company’s record performance, a sense of crisis is lingering around it as unfavorable factors tend to increase, including the falling memory semiconductor prices, the continuing trade disputes between the U.S. and China and the ongoing trial on vice chairman Lee Jae-yong.