TV Makers Trading Growth for Profits
The top global TV brands continued to sustain profitable businesses in Q4 despite declining revenues, although it appears that LGE has stumbled a bit in the holiday season. Samsung and Sony are enjoying an unprecedented run of profits in the TV market.
Each of these three top brands reports their TV business as the major part of a business segment, and in each case they name the segment slightly differently. Samsung reports TV within its Visual Display segment, a part of its Consumer Electronics group that also includes Digital Appliances. LG Electronics calls their segment a simpler Home Entertainment.
Sony changed its reporting structure in its new fiscal 2019 which started April 1, 2019, and now reports TV within its Electronics Products and Solutions (EP&S) business segment, which also includes audio/video products, still and video cameras, smartphones, and other electronics products. Sony continues to disclose revenues and unit sales from its TV business, but reports operating profits for EP&S. Through its fiscal 2018 Sony reported TV within its Home Entertainment and Sound (HE&S) business segment, and whereas TV revenues were typically about 2/3 of HE&S, TV revenues are only about 1/3 of EP&S. The inclusion of Mobile Communications, a perennial loss-maker, likely brings down the profitability of EP&S as compared to the prior HE&S segment, although Sony indicated that reductions in operating costs in that business was a big driver from improved profitability in Q4.
The quarterly revenues of the three brands’ TV businesses are shown in the chart below. Note that the chart shows the business division revenues for Samsung and LGE, and TV-only revenues for Sony. All three brands show the telltale seasonality of the TV business with a 4th quarter spike followed by a decline in Q1 and relatively flat Q2-Q3. In Q4, Samsung managed a 2% revenue increase Y/Y, while LGE and Sony revenues declined 3% and 7%, respectively. For the full year 2019, Samsung, LGE, and Sony saw revenue declines of 2%, 6%, and 12%, respectively. The combined revenues of the top three, a useful proxy for the TV industry overall, came in at -3% for the most recent twelve months, and -1% for the fourth quarter.
TV Business Revenues of Global Brands, 2015 - 2019
With revenues declining, profits for two of the three TV makers continue are also declining, with Samsung again the exception. Operating profit for the full year declined by 39% for LGE and by 6% for Sony, but Samsung increased operating profits by 22%. As a group, operating profits by the big three brands decreased by 5% for the year. In Q4, LGE profit declined by 49% and Sony by 7%, while Samsung profit increased by 14% Y/Y.
It is no coincidence that LGE TV profits started to decline at the same time that LG Display raised its prices for OLED TV panels in Q3 2018; up to that point LGE had enjoyed a generous run of cheap OLED TV panels, and established a position in the premium TV market as a result. With OLED TV panels now closer to a market price, LGE’s profitability has diminished.
TV Business Operating Profits of Global Brands, 2015 – 2019
On an operating margin basis we can see Samsung’s steady improvement on the next chart. The growth in profit margin from 2017 to 2019 coincides with LCD TV panel price declines throughout that period, and since Samsung relies exclusively on LCD technology, it benefits most from such declines. LGE’s profit margin dropped to its lowest level since 2015 in the fourth quarter of 2019, while Sony’s margins show a characteristic drop in Q1 of each year on an accounting charge, but overall have sustained a full-year profitability.
TV Division Operating Profit Margins of Global Brands, 2015 to Q3 2019
In earnings comments, Sony hardly mentioned its TV business, focusing comments in the EP&S segment on Mobile Communications, which they said earned a profit in the 4th quarter after several years of losses. LG noted that “increased marketing expenses and sales price decline from intensified competition” hurt profits in its Home Entertainment segment in Q4, but LGE expects revenue growth in 2020 led by premium TVs. Samsung noted that “earnings improved on an improved product mix as successful holiday promotions helped expand sales of premium products such as ultra-large and QLED TVs”.
While Samsung seemed to have lost a step on its rivals with the lack of an OLED TV product, they have benefited the most from lower LCD TV panel prices, and clearly won the competition for the best business results of 2019.