Samsung Electronics has released its unaudited accounts for Q1 2015, and confirmed its continuing decline, but with some signs of a reversal in sight. Notably the next generation Galaxy S6 and S6 Edge did not ship during the quarter, suggesting a recovery is possible in Q2. However China continues to be a challenge for the company, and the overall balance appears to be swinging back towards its OEM businesses.
Highlights in the announcement were the continued growth of its Semi-conductor Division, supported by its DP (Display) business. Apple and others are reported to be returning to the fold, and the latest 14nm chip plant, already feeding the Galaxy S6, will most likely supply the next iPhone. This seems to confirm B-to-B/OEM through chips and screens as the long term core business for Samsung Electronics.
Conversely the IM (Mobile) division dropped further, although at a slower rate. Its revenues in USD declined 23% YoY, and by 59% in profit, and for the third quarter in succession Mobile generated less profit than the Semi Conductor business. Samsung smartphones are under concerted attack from lower-cost Chinese Android vendors, as well as by Apple at the top end, and margins have been affected by excess inventories, and the consequent promotional spend, coupled with a disadvantageous mix trending towards the low end. Samsung’s reaction has been the redesigned premium Galaxy S6, seeking to reclaim the high end from Apple. The S6 could herald a recovery as it started shipping early in Q2.
Samsung did not release any regional data, saving this for its audited results, expected in June. However the most recent such data - from Q4 2014 - suggests China and Europe are the fastest declining regions, dropping over 30% YoY, while even the US declined by 15%.
Looking ahead, guidance from Samsung for Q2 and for 2015 was optimistic for Semi-conductor, though weaker for other divisions. Specifically the new 14nm chip plant volume ramp was in place ahead of the Galaxy S6 launch, and is forecasted to continue to attract OEM business. Conversely other businesses saw more cautious guidance on the back of smartphone and tablet saturation, competition and exchange rate risks. Core focus areas remain: to strengthen existing businesses; build B2B and Content/Services; a competitive IoT presence; and to enhance shareholder value.
The key questions facing Samsung would therefore appear to be: can the company regain the high end for smartphones? Can it succeed in China? And will a rebalancing towards the B-to-B/OEM businesses go far enough?
