Samsung Electronics has reported revenues of 57,46-trillion won (R505 648-billion) on a consolidated basis for the second quarter ended June 30, 2013 – a 9% increase from the previous quarter.

Consolidated operating profit for the quarter reached 9,53-trillion won (R83 864-billion), representing a 9% increase on quarter, while consolidated net profit for the same quarter was 7,77-trillion won (R68 376-billion).

In contrast to the first half of last year, revenue was up 19% and operating profit increased 51% in the first half of 2013 as profitability in the components business improved. The profit ratio reached 16,6% in the first six months of the year compared with 13,1% recorded in the same period last year. Samsung expects to see solid growth and the components business’ contribution to profits will gradually increase.

Highlighting the quarterly performance, growth remained steady in high-end smartphone and premium television businesses. Most noticeably, a growth spurt in shipments for OLED panels for smartphones and high consumer demand for air conditioners spurred growth.

Led by the much-awaited launch of Galaxy S4, smartphone shipments and revenue increased from the March quarter. The strong growth streak for the smartphone market is expected to continue in the third quarter albeit at a slower pace.

The components business improved both in terms of revenue and operating profits from a quarter earlier due to a higher demand for mobile device-related parts. However, overall sales of logic chips declined due to lower mobile application processor shipments.

Escalated investments in R&D and in distribution channels, as well as expenses on new product launches have dampened wider gains for IT & Mobile Communications (IM) Division, which encompasses the Mobile Communications, Networks, and Digital Imaging businesses.

“Entering into a typically strong season for the IT industry, we expect earnings to continue to increase. However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphone and other set products,” says Robert Yi, senior vice-president and head of investor relations at Samsung.

“We expect to improve profit yields in the second half due to high-margin, differentiated components products, as well as gains stemming from increased smartphone and TV shipments,” he adds.

The Display Panel segment’s operating profit jumped 46% on quarter to 1,12-trillion won (R9 856-billion) thanks to strong demand for high value-added panels for IT and TV panels sized 60-inch and over. A mid- to low-end TV line-up targeting emerging markets and a range of premium TV offerings were credited for the Visual Display business’ earnings. As for the next quarter, uncertainties over Europe’s economy and Chinese subsidies for electronics goods could possibly hinder growth.

As for this year’s capital expenditure, Samsung Electronics plans to spend a record total of 24-trillion won (R210 216-billion) an increase of over 1-trillion won (R8 800-billion) from the previous year. This amount may increase depending on market conditions in the second half and the outlook for next year.

The Semiconductor business will invest 13-trillion won (R114 400-billion), while the Display Panel segment will inject 6,5-trillion (R57 200-billion) in capital expenditure (capex). The increase in spending is aimed at enhancing Samsung’s competitive edge in growth-generating, high value-added DRAM, NAND and System LSI products.

In the second quarter, capex amounted to 5,2-trillion won (R45 760-billion), in which the Semiconductor business was responsible for 2,2-trillion won (R19 360-billion), and 1,3-trillion won (R11 440-billion), in spending was accredited to the Display Panel segment. All told, a total of 9-trillion won (R79 200-billion), or 38% of the planned capex investment was made in the first half of the year.

Samsung’s Semiconductor businesses – including Memory and System LSI – posted 8,68-trillion won (R76 384-billion) in consolidated revenue. The Memory chip business reached earnings of 5,7-trillion won (R50 160-billion) or an 11% spike in revenue quarter-on-quarter.

Global demand for PC DRAM remained weak while orders for high value-added server and mobile DRAMs stayed strong. The NAND flash memory segment remained competitive due to wider adoption of Solid State Drives for enterprise and personal PCs. Steady demand for affordable smartphones and tablets also shored up NAND sales.

With a differentiated product mix including server and mobile DRAMs, Samsung was able to improve sales with high-performance, high-density chips. The NAND flash memory segment remained competitive through process migration to 10-nanometer class process technology.

In the July-September quarter, demand for DRAM used in data centres is expected to remain high. Orders from the electronic gaming industry will add to profit margins as video gamers seek more powerful graphics DRAMs. Peak seasonality will help PC sales by a slight margin.

Samsung will try to ramp up sales of application processors (AP) with 28-nanometer process technology and high-resolution image sensors. Demand for the components is expected to grow as mobile devices needing more processing power roll out into market in the remaining quarters.

By diversifying its product portfolio and consumer base, and by gearing up development of 20 nm-class and 14 nm-class process technology, Samsung aims to achieve a stable level of growth.

The Display Panel business recorded revenue of 8,18-trillion won (R71 984-billion) in the second quarter while posting an operating profit of 1,12-trillion won (R9 856-billion). This represented a 46% increase in profit compared with the previous quarter on the back of improved sales in high value-added panels.

In the second quarter, the overall panel market saw on-quarter growth as demand for TV panels was bolstered by sales promotions such as Labour Day in China. Demand for tablet displays continued to demonstrate growth despite the continued slump in IT panel products. With an improved market environment, Samsung was able to deliver solid results and improve profitability in the quarter by expanding sales in high value-added products, such as high-resolution displays for tablets, large-size premium TV panels, and OLED displays for smartphones.

Looking ahead to the third quarter, Samsung anticipates market growth as higher seasonal demand for panels takes effect. For TV panels, demand is expected to be dampened by economic uncertainties although the large-size premium panel market is expected to sustain growth. Samsung aims to strengthen its leadership in the high-end TV panel segment with expanded sales in UHD panels and in the 40- to 50-inch class.

Concerning the market outlook for IT panels, although uncertainty remains in the PC and monitor sector, robust demand for tablet displays is expected to continue as new products are launched by manufacturers in the latter half of 2013. Samsung plans to reinforce its market leadership in tablet panels by expanding its line-up of high-resolution and mass market displays.

For OLED panels, positive growth for high-end smartphone displays is expected to be maintained in the second half. To ensure continued momentum, Samsung will concentrate on offering differentiated smartphone displays through technological competitiveness, including flexible display technology, and focus on enhancing cost competitiveness.

The IT & Mobile Communications division – consisting of Mobile Communications, Networks and Digital Imaging businesses – posted operating profits of 6,28-trillion won (R55 264-billion) on 35,54-trillion won (R312 752-billion) in revenue for the June quarter. Out of the total IM earnings, the mobile business was responsible for 34,58-trillion won (R304 304-billion). Driven by Samsung’s flagship Galaxy S4 and the Galaxy Note 8.0, which have been well received by the market, quarterly revenue for the mobile sector climbed 9% compared with the prior quarter. An upswing in R&D investment and expansion of distribution channels, along with new product launches have weighed on IM’s performance. Slow sales in PC and Networks businesses also brought down profitability.

Looking ahead, Samsung smartphone sales are expected to pick up in the third quarter and outperform global market forecasts. Smartphones will grow to account for over 70% of the company’s mobile phone shipments in the third quarter due to the strengthening mid- to low-end mobile market. Growth momentum in the July-September quarter will remain on course, although at a slightly reduced pace.

In the case of tablet PCs, Samsung will post growth in the mid-10% range with the introduction of new tablets. Shipments of tablets will jump to a little over 30% on-quarter, outpacing the market.

Average Selling Price (ASP) of smartphones will likely be impacted due to a wider range of low- to mid-priced smartphones hitting the market. Sales of tablet PCs are expected to remain solid and Samsung is looking to expand global sales with a broad portfolio of models including Galaxy Tab 3. Samsung is also looking to improve profitability in IM through its line-up of mid- to high-end hybrid tablet-laptop devices such as ATIV Q and wider adoption of LTE mobile telecommunication technology.

The Consumer Electronics Division – including the Visual Display and Digital Appliances businesses – posted an operating profit of 430-billion won (R3 784-million) for the quarter on revenues of 12,78-trillion won (R112 464-billion). The Visual Display business accounted for 7,94-trillion won (R68 872-billion) of earnings.
Sales of premium TV models and strong seasonality for air conditioners helped improve the division’s sales performance by 14% on-quarter.

In the TV market, despite sluggish demand in Europe and the effect of weak seasonality, year-on-year and quarter-on-quarter growth in the low single digit range was experienced. In the second quarter, Samsung strengthened its product line-up in North America and China to expand sales.

The company continued to expand sales of its premium TV line-up, recording positive on-quarter sales growth of the F7000/8000 series and of large-sized TVs of over 60 inches. In emerging markets, Samsung increased sales through its line-up of mass market products.

Moving into the second half of the year, growth will pick up under stronger seasonal demand although competition may intensify with launches of premium TV products. Uncertainties over the discontinuation of the China energy subsidy and economic recovery in Europe may also weigh on demand.

Although competition will intensify, Samsung aims to strengthen its market leadership in the third quarter by offering premium TV products with differentiated design and technology, including UHD TV, Curved OLED TV and large-sized TVs of over 60 inches and Smart TVs. In emerging economies, the company will focus on promoting region-specific TV models and mass market LED TV models in response to an expected rise in demand.

For the Digital Appliances Business, despite challenging economic conditions driving down global demand during the second quarter, Samsung achieved growth by strengthening its mass market product line-up and responding positively to strong seasonality for air conditioners. Looking ahead, low growth in developed economies is expected, while overall growth in emerging markets such as Asia is forecast.

Samsung will seek to enhance competitiveness by expanding its product portfolios in both the mass market and premium segments, and improve profitability and operational efficiency.