Samsung Earnings – LCD Revenues/Margins Reach New Low, Loss Likely in Q1’20 for Displays
Samsung Electronics revenues fell 2% Q/Q and 3% Y/Y in $US to $50.9B. It was the 5th straight quarter with revenues down Y/Y. By division, CE and Harman were the only segments to rise Q/Q with CE, Harman and IM the only segments to rise Y/Y. Semi and Display were down double-digits Y/Y. Margins were flattish to down. Interestingly, operating margins improved in every segment except for Displays which dropped significantly from 12.6% to 2.7%.
Samsung Electronics Financials
Revenues by segment are shown below:
- Display revenues fell 12% Q/Q and 16% Y/Y due to a large decline in LCDs as they cut capacity on reduced competitiveness with Chinese competitors and OLED shipments fell as iPhone and Galaxy demand dropped Q/Q.
- The IM (mobile) business fell 13% Q/Q on reduced flagship Galaxy volumes, but was up 3% Y/Y.
- The CE business enjoyed seasonal strength in Q4’19 and rose 18% Q/Q and 3% Y/Y helped by higher sales of larger QLED TVs.
- Semiconductors were down 3% Q/Q and 14% Y/Y on continued memory price reductions.
- Harman was up 5% Q/Q on seasonal demand, but also rose 3% Y/Y likely helped by new products and synergies with Samsung.
Samsung’s Revenues by Division
In terms of operating income and margins by division:
- Displays fell from 15% of operating income in Q3’19 to just 3% in Q4’19 as display operating income dropped 81% Q/Q and 78% Y/Y on a large margin decline in both LCDs and OLEDs.
- Semiconductor operating income rose 15% Q/Q to $2.94B, the highest since Q1’19, but was still off 57% Y/Y. Its share of operating income rebounded to 48%, once again dominating Samsung’s profits as margins improved from 17.3% to 20.5%.
- CE operating income rose 50% Q/Q and 14% Y/Y on increased profitability of large QLED TVs and rose from 7% to 11% of operating income with margins rising from 5.0% to 6.4%.
- IM fell 12% Q/Q, but rose 60% Y/Y to $2.1B. Its share fell from 38% to 35% as margins were flat at 10%.
Samsung’s Operating Income and Margins by Division
In terms of Samsung Display’s business:
- OLED revenues fell 9% Q/Q and 7% Y/Y to $5.9B on reduced volumes of flexible OLEDs to Apple and Samsung Galaxy. The OLED share of revenues rose to 87%, a new high, as LCDs fell faster. We do believe they had increased flexible OLED shipments to China for 5G product launches, however. OLED operating profit dropped 52% Q/Q and 20% Y/Y on the lower flexible OLED volumes and utilization. As a result, OLED margins slid from 19% to 10%, the 2nd lowest since Q3’18.
- LCDs reached a new low, falling 25% Q/Q and 48% Y/Y to $920M on lower prices and lower shipments due to the ongoing oversupply. The LCD operating loss reached a new low at $418M. It fell 55% Q/Q and was down $500M Y/Y. Margins plummeted to -45%.
Looking forward, Samsung indicated that OLED OPMs are expected to fall significantly in Q1’20 on reduced utilization from seasonal weakness in Apple’s flexible OLED demand as mobile display earnings are expected to be “significantly weaker”. In addition, LCDs will continue to struggle on weak seasonality and will continue to lose money in Q1’20. Thus, it is likely that SDC will lose money in Q1’20. DSCC is forecasting SDC’s flexible OLED utilization will fall from 58% in Q4’19 to 44% in Q1’20 while its rigid OLED fab utilization will fall from 80% in Q4’19 to 78% in Q1’20. Thus, total mobile OLED fab utilization will fall from 69% to 61%, not great, but better than last year.
SDC’s Revenues by Display Technology
SDC Margins by Display Technology
Other key takeaways in displays:
- Display capex rose 83% Q/Q and 73% Y/Y to $766M in Q4’19 as they cut POs for QD-OLED tools for TVs and for LTPO and Y-OCTA for mobile. They are also establishing new foldable module capacity in Vietnam. 2020 capex will certainly be higher than 2019 which was $1.9B, but they have not announced it yet.
- For 2020, they expect OLED penetration to rise as the 5G market expands. They will continue to extend OLED leadership with differentiated technologies and designs and will target new applications. For smartphones, they will also try to expand their customer portfolio though differentiated technologies, new designs and cost competitiveness. Will leverage the foldable opportunity as well as the opportunity in IT displays.
- Large displays – earnings will remain weak due to a persistent supply glut and added costs from reorganizing their business structure and production around QD-OLEDs. Will focus on ultra-large and 8K TVs and curved and gaming monitors.