Chips and displays start to turn the Samsung ship April 07 2015

BY CAROLINE GABRIEL

Around the turn of the year, Samsung was forced to make some bold statements of direction as the harbingers of doom leapt on the declining growth and market share in its most important business, smartphones. It indicated that it would put more funds and focus on other revenue streams, particularly chips and displays, and the former strategy already looks to be having some effect.

The mainstay of Samsung's chip operations is memory, but it also aims to grow its mobile processor and modem activities, and its foundry business. Reports that it will use its own Exynos SoC in more Galaxy S6 models than previously expected (at the expense of Qualcomm) shows the company becoming more self-sufficient, though it also needs to sell the product to more third parties to challenge the leaders, especially if its own smartphone demands fall.

Other reports said that Apple, hard as it has tried to cut its ties to its biggest smartphone rival, is swinging back towards Samsung as the primary manufacturer of its mobile processors. Sources say the latest model, the A9, will mainly be made by Samsung in Korea, and also by its partner GlobalFoundries, a blow to TSMC, which was the main foundry for the A8.

Improving sales of chips and displays are already affecting quarterly figures. According to Samsung's preliminary statement of its first quarter results, those two businesses saw growth, even while the mobile unit continued to contract, leading to an anticipated 30% year-on-year drop in Q1 profits - the sixth quarter of profits reduction in a row (though it was better than analyst estimates). Operating profit for the quarter will be around KRW5.9 trillion ($5.4bn), said Samsung, while revenue should fall by 12% to KRW47 trillion. Full results will be reported at the end of April.

Beneath the depressing headlines, the semiconductor unit will post a profit this year, analysts expect, and in Q1, it is predicted to make sales of 11.1 trillion with operating earnings of KRW2.7 trillion. The display division is expected to report operating profit of KRW450bn, boosted by rising demand for ultra-thin displays for affordable smartphones. The higher end OLED screens are mainly used in Samsung's own high end models.

Operating profit at the consumer electronics division, which includes TVs and appliances, is expected to fall, as are earnings at the mobile unit - likely to post operating income of KRW2.3 trillion on sales of KRW27.1 trillion, according to an analyst poll by Bloomberg. Daewoo Securities said Samsung shipped 81m smartphones in the quarter, up 7% from Q414, and its current quarter should be boosted by the shipment of the Galaxy S6 and S6 Edge from April 10.